DEVICE STRATEGY
Innovation and focus on Emerging Markets are key success factors in declining E-Reader Device market
THE E-READER DEVICE VENDORS ARE HURTING
Sales of e-reader devices are falling rapidly. Devices such as Kindle, Nook and Kobo are all experiencing a rapid drop off in sales. Our Global Consumer Panel shows that in developed markets such as the United States and Canada, only about 20% - 25% of adults use an E-Reader such as a Kindle or Nook in 2017, this was substantially lower than in 2013, when our Panelists told us that close to 35% of them owned such a device.
With only 5.5 million E-Readers shipped in 2017 (based on our Global Enterprise Panel estimates), e-reader device manufacturers are shipping the same number of devices that they were in 2009.
Clearly, the industry is hurting.
A NEW HOPE: EMERGING MARKETS
Our Global Consumer Panel surveys show that e-reader device vendors have a major opportunity in emerging markets to capture market share and keep it, at least for another decade. Indeed, our panelists in emerging markets are hungry to access e-books in a cost-effective manner and some e-reader device vendors are investing in building a robust ecosystem that will be an effective moat against the usual competitive suspects: smartphones and tablet form factors.
A number of features of emerging market readers offers hope to e-reader device manufacturers:
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Cost: Most e-reader devices have now breached the sub-$100 mark and are falling. Over 79% of consumers in our emerging markets panel thought that the price of e-readers was attractive enough for them to consider making a purchase;
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Lack of Bandwidth: While tablets and smartphones offer more versatility such as emails, social media, web browsing, video, or games; many low-income consumers in emerging markets do not have access to the connectivity infrastructure that would allow them to use these features. In our Global Consumer Survey, close to 49% of our panelists in India, for example, are hooked to the internet through a 2G connection. This allows e-books to be a natural fit in a low bandwidth environment.
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Challenging Economics for Traditional Publishers: While the publishing industry is in decline globally, it has always faced challenges in emerging markets. Emerging markets are characterized by declining or non-existent book retailers, limited physical book distribution and challenging economics for publishers and distributors. This, in itself allows e-books e-reader device vendors an opportunity to meet pent-up demand for books.
BUILDING AN INTERNATIONAL ECOSYSTEM
Our research into emerging markets such as China, India, Brazil, and Mexico shows that it is possible for device vendors to sell 100,000+ devices in each of these large emerging markets, if they build an ecosystem of local partners and distributors selling local content, in addition to scholastic content in the English language.
In other words, like in any other market, having the device is only the first step. Having the content is important as well.
Our research into emerging markets also shows that the largest e-reader device vendors are not as aggressive as they could be in selling their devices and books to the lower-end of the reading public in these emerging markets. Kobos for example are still available only through booksellers and electronic retail outlets in the Middle East focused on urban markets.
In a large market like China, the dynamics of e-reading is also different than anywhere else in the world (except perhaps Japan and South Korea). We estimate, based on our Global Consumer Panel that China alone has 340 million readers of Chinese online literature, with 90% of them reading on their mobile devices. Most of this market consists of under 30-year-olds, who favour "drip" and interactive reading of genres like fantasy, wuxia (stories about heroes and martial arts), science fiction, mystery and romance. We estimate that the Chinese market alone has grown by 16.2% annually since 2012, to become a RMB 9.2 billion market ($1.4 billion), thanks to the entry of Tencent's subsidiary, China Literature, which had revenues of RMB 4.1 billion in 2017.
In our view, the e-reader device manufacturer journey has only just begun. How quickly device vendors can build their ecosystems in emerging markets will largely determine their success.
