Shaping a Strategy For

Shaping a strategy for

e-books

An issues paper

Hazel Woodward and Louise Edwards, September 2001

Contents

Introduction
Industry overview
Distribution and the role of intermediaries
Economic overview
Marketing strategy
Authoring
Technical overview
Standards
Preservation
Conclusions
Bibliography
Appendix 1: List of publishers consulted

1. Introduction

The purpose of this paper is to set out some of the issues for the E-Books Working Group to consider when setting a strategy for the development of e-books within UK higher and further education. In summary, the objectives of the E-Books Working Group are:

To monitor the e-book industry worldwide and influence its development for the benefit of further and higher education in the UK;
To secure cost-effective access to a comprehensive and relevant collection of electronic books for universities and colleges;
To achieve sustainable economic models for electronic books;
To assess the impact of new hardware and software, emerging e-book standards and digital rights;
To encourage the option of electronic publication for authors whilst maintaining a realistic view of new technology;
To take a balanced view of the role of e-books and understand how they can be integrated effectively into learning and research.

The term ‘e-books’ is defined broadly to include electronic reference works, monographs and textbooks. They may be delivered via the Web or a hand-held device.

A number of people in the e-book publishing industry have been consulted (see Appendix 1) and their views have been incorporated within this paper. Industry news, as well as in-depth articles and reports, have also been regularly reviewed.

2. Industry overview

To chart the development of the e-book industry provides a complex and interesting mix of the traditional and the new. Many powerful players have entered the industry, not least Microsoft and Adobe. At the same time, the e-book business has experienced many of the fluctuations of the dot.com ‘revolution’:

Phase 1: Rapid expansion during the 1990s. NetLibrary, Questia and Ebrary were all established in the last years of the decade. Considerable venture capital spent on digitisation and fast growth of the workforce
Phase 2: A sudden tightening of the capital markets, forcing many e-book companies to drastically reduce their overheads. The immediate impact was a significant drop in the workforce and a much slower pace at which books have been digitised
Phase 3: Emphasis on the need to generate actual revenues by increased sales

2.1 Industry forecasts

Industry forecasts for e-books have fluctuated markedly. Accenture (formerly Andersen Consulting) predicted a strong market for e-book content by 2005 and Forrester has forecast big rises within the same period, with a quarter of textbook sales going electronic. Consulting firm IDC foresaw fast growth in demand between 2000 and 2004. Jupiter has concluded that e-books will make up 6.5% of college textbook sales by 2005 whereas PricewaterhouseCooper predicts one-third of textbooks will be sold electronically in the US by 2004.

On the question of the future of e-book aggregated services, Eduventures, a US consultancy, estimates the current market at $250 per annum and forecasts it to triple by 2004 to $850m. Eduventures predicts that market growth will not be quick enough, however, resulting in restructuring, corporate acquisition and, ultimately, failure for some. The emergence of a possible ‘winner’ in 2002 is indicated, along with the arrival of new players in the market. Success factors, based on Eduventure’s research, include extensive and exclusive content, integration with other online resources, a strong connection with the curriculum and the ability to tailor to end-user needs.

2.2 Publisher perspective

The first of an annual survey of publishers on their changing perspectives of e-publishing has recently appeared. The vast majority of publishers reported that they are now involved in electronic books, either by dedicated hardware, print-on-demand or online delivery. Interestingly, a greater number of publishers are considering online delivery of books via the Web rather than for hand-held devices. Digitisation of backlists was considered to be a problem for publishers and only 4% of 61 respondents said that 100% of their content was digitised and in a readily-accessible digital library. The amount of content available in digital form ranged from 5% of a publisher’s titles, to 100%. There was evidence that most new content is digitised as a matter of course.

3. Distribution and the role of intermediaries

Publishers and intermediaries are re-thinking distribution channels for the electronic environment, ranging from a direct publisher-reader relationship to a complex chain involving many intermediaries. Many of the publishers interviewed for the annual survey on e-publishing expressed the view that online delivery would impact strongly on the existing supply chain.

3.1 Publisher direct

Several publishers reported that would like to supply direct but are aware of the risks in taking on further distribution costs and digital rights management. There is a greater willingness to supply direct on self-contained products where there is a critical mass of material, such as a reference work or where a publisher has particular subject strength. Some publishers with a strong brand identity also seem keen to take this route to market.

3.2 Distribution companies

A number of new electronic distribution companies have set up in business over the last few years, such as Lightning Source and Versaware. These ‘digital distributors’ build a repository of content and output it in a variety of formats. They may typically be responsible for preparing and maintaining electronic editions of a book or for handling e-book purchases directed via the publisher’s server. To date, books have been going through a labour-intensive process of scanning, conversion, proofing and editing.

Companies that started life as digitisation companies appear to be re-inventing themselves quickly and increasingly outsource digitisation processes, switching instead to the provision of added-value services such as maintaining asset stores of material, handling electronic distribution and payment. NetLibrary, which previously undertook its own conversion, has outsourced the operation and reduced its headcount significantly. Versaware, the main partner in Taylor & Francis’ digitisation plan, is reported in the press to be struggling.

The main implication of digitisation and distribution changes is that customers will be able to purchase books online and access the electronic versions of books in many more ways that they have done in the past. Many new companies are offering storage of material, aggregation and marketing. Even small publishers, Pluto Press being a good example, are forming partnerships with these companies in order to make their books available online through a delivery platform.

3.3 Aggregator overview

One of the biggest challenges for the aggregator is to select the right books to include in its database. Conversion rates vary between publishers, with anything from 100% to practically no titles available in electronic format. The need to reduce costs means that aggregators such as NetLibrary have started charging for conversion, rather than undertaking it for free. There is greater selectivity all round in what is chosen for conversion. For this reason alone, JISC is unlikely to secure large discounts from aggregators that have incurred high conversion costs.

The situation is improving. Publishers are now willing to provide aggregators with front-list titles, rather than older books. The current investment in digitisation will decline as books are automatically produced in an electronic format.

Business strategist Michael Porter (2001) has expressed his concern that the current trend for outsourcing and partnering tends to create a homogenous product, with no real distinctiveness between services. In this context, it will be interesting to see how e-book aggregators seek competitive advantage in the marketplace.

Will they, for example, aim for exclusive content?

Many of the aggregators, notably Ebrary and Questia, increasingly view their strategy in terms of ‘e-content’, building collections that comprise not just books, but journals and other digital material.

3.3.1 NetLibrary

NetLibrary was one of the first aggregators of e-books, launching its first titles in 1998. The company was funded through venture capital and grew from 8 employees to 500 in a two-year period. However, it has attracted insufficient revenue to maintain this level, reducing its staff by 200 and selling off its e-book software arm, Peanut Press, in order to concentrate on the library market. In April 2001 NetLibrary adopted the OEB standard, enabling it to reduce the resource dedicated to conversion processes and publishers will either have to pay for conversion themselves or deliver material to NetLibrary in OEB format.

NetLibrary offers libraries the opportunity to buy individual titles or subject-based collections.

A book is bought outright by the library and can be ‘borrowed’ by readers for browsing or downloading for a period of time determined by the library. NetLibrary themselves expect people to use their books as research sources, not read them in their entirety.

As NetLibrary has been the first aggregator to arrive in the UK in force, there is expectation from the community of a JISC deal. However, although NetLibrary does offer discounts on large purchases, they are not significant. NetLibrary is reported to be developing alternate pricing models, such as term-lease and pay-per-view options.

3.3.2 Ebrary

Ebrary was founded by and very much shaped by the Warnock family, father and son. John Warnock was CEO and co-founder of Adobe. Ebrary uses Adobe’s pdf format to present documents in their original layout, minimising the need for investment in expensive conversion processes. Ebrary is funded by Pearson, Random House and McGraw-Hill.

A range of deals has been struck with high-profile publishers. Ebrary recently announced a deal with Springer-Verlag, in addition to agreements with other major publishers such as Cambridge University Press and Palgrave. Major US university presses such as Yale, MIT and Stanford have also signed up. At around only 3,000 items in its current collection, Ebrary has taken a much more cautious approach to building its online library.

Ebrary has recently announced that it is expanding distribution through vertical collections available through a variety of Internet portals, e-learning providers and other Web sites. It has been able to build on its partnership with the four publishers, for example, distributing content via Pearson’s Learning Network site in the US.

Ebrary wants to recreate the browsing experience of being in a library or bookstore, its model based on ‘read, then pay’, rather than ‘pay, then read’. Ebrary claims that this model will allow publishers to recoup some of the revenue lost to the photocopying industry. Copy costs are determined by the publisher and Ebrary offers deposit accounts from which small purchases are deducted by use of an Ebrary debit card.

Ebrary will form partnerships and share revenues with libraries and other outlets. It has begun a period of consultation with the library community worldwide, but the real challenge is to make the model work in higher and further education without the administrative burden of a metering system. The obvious advantages of Ebrary centre on the flexibility of a pay-as-you-go model that only charges for material actually needed.

3.3.3 Questia

Questia is the largest digitisation project in the world and today offers around 60,000 items (mostly e-books but not e-textbooks) in the humanities and social sciences. Core strengths include psychology, sociology and history. The Questia collection has been built around assignments on the first two years of the undergraduate core curriculum in the United States. All books have been converted to XML format and Questia has spent more than $100 million in venture capital. Like NetLibrary, Questia has recently cut back about half its workforce and reduced the pace at which material is being added. The company reports that it expects to be profitable in two years. The business model is a subscription one, aimed directly at the student. Questia will also negotiate with institutions in the purchase of user licences on behalf of students, with the option of building the cost into course fees. Questia is available at $9.95 per week or $149 per year. Although reportedly rising, the subscriber base remains low, despite a heavy marketing campaign in the US using consumer channels such as TV. Questia claims to be more than an online library, providing searching and note-taking facilities for students.

3.4 Print-on-demand

In the annual survey of publishers, academic publishers were generally positive about the benefits of print-on-demand, the main concern being cost of the technology and quality of output. Several of the publishers consulted for this report also showed strong commitment to POD.

Companies such as Lightning Source (now located in the UK) offer storage of a book in digital format, together with retrieval and printing as required. Such intermediaries provide services to booksellers like Amazon as well as to publishers.

One of the main advantages is to maintain low-selling books in print for a longer period. There has been talk of installing POD devices, high volume printers, in a number of outlets, including libraries and bookshops. Other writers emphasise the disadvantages of print-on-demand, particularly the cost and time of printing an entire book. Lynch (2001) believes print-on-demand will inevitably decline as people become familiar with e-book software.

3.5 Booksellers

Booksellers have been slow to embrace e-books in the UK. In the US, there has been a greater level of activity and booksellers such as Barnes & Noble are promoting e-book content.

Campus bookshops are highly dependent on textbook sales and in the last twelve months have started to put reading lists on the Web. Price competition has become a factor for student book sales, despite the convenience of local campus bookstores. New, ‘virtual’ booksellers have entered the market. Swotbooks.com is a good example of Internet syndication, the creation of vertical channels to market, recently forming a partnership with UCAS, the University and Colleges Admissions Service. Swotbooks have announced their intention to move into e-book supply in due course.

3.6 Library suppliers

The role of library suppliers in the e-book market seems as yet unclear. Suppliers appear to be adopted a ‘wait and see’ policy, although several are acting as agents for aggregated products such as NetLibrary. The value-adding services offered within the printed world, such as supply, reporting, invoicing, discounts need to be reassessed within the e-book environment.

3.7 Managed learning environments (MLEs)

A number of publishers and aggregators have signed partnerships with the providers of managed learning environments (MLEs), such as Blackboard and WebCT.

3.8 The DNER and e-book distribution

The NESLI evaluation (2000) highlighted the need for clarity in the roles and responsibilities of the main players in the distribution chain, not least that of the managing agent. Libraries also questioned the lack of choice over the interface for delivery of materials. There appear to be several options available to the DNER in facilitating access to e-books for the community:

To develop direct relationships with the publishers and access material through them;
To develop relationships with one or more aggregators, working with them to shape a collection around UK needs;
To develop a delivery platform for e-books within the UK education community itself or to form a partnership with an e-distribution company to host and deliver material;
To form partnerships with other stakeholders in the distribution chain to facilitate access to content, for example, library suppliers and MLE vendors.

This will be a vital decision for the community and one on which users and librarians will need to be extensively involved.

4. Economic overview

Lynch (2001) has urged that our thinking should not be dominated by the conventions and business models of print publishing. The Internet has created opportunities for selling content in a whole variety of ways, including bundling, site licensing, subscriptions, rentals and pay-per-view. It is also making micro-payments feasible.

Lynch has outlined some of the main economic questions regarding e-books:

Can an e-book be loaned or given to someone else?
Do you own an e-book or have access to it?
Can you copy an e-book for private use?
Do you obtain e-books on a pay-per-view basis or a perpetual licence to view?
Are inter-library loan functions preserved?

There is recognition that electronic books will affect purchasing decisions and use between end users, libraries and booksellers. Libraries have provided an increasingly large number of textbooks, but with the potential inconvenience to end-users having to wait for access and with a limited amount of time for reading. Outright purchase by the end-user gives them the option of paying for speed and convenience. E-books have the potential to upset this balance, by giving end-users far easier and convenient access from the library. Publishers like Cavendish, worried about the potential threat to text sales, are considering models specifically for libraries, such as read-only, to encourage students to purchase the material themselves. NetLibrary is another example of a model deliberately designed for library sales.

Actual pricing is still to be settled in the marketplace. Some e-books are being offered at prices slightly lower than the print, others are decidedly more expensive e.g. NetLibrary. Librarians have contrasted the list price + service charge from NetLibrary with the heavy discount available on a paperback book.

Publishers reported that they had rejected deals with some intermediaries because of their demand for an ‘excessive’ share of the income. This has created an Interesting balance of power between publisher and distributor. At the same time, new digital rights management systems allow a range of accesses and pricing defined by the publisher.

There is general acceptance that some of the current models are interim. Clearly, the DNER should not get itself locked into an economic model that will be superseded.