Kobo CEO Mike Serbinis: Doubling Down on E-Readers and International Expansion

mike serbinisLike so many other professionals working in book publishing today, Mike Serbinis could have chosen a career in pretty much any field.

He’s played the Silicon Valley game and won, founding one of the first cloud computing start-ups (DocSpace) and selling it for over $500 million dollars just days before the market began to crash in March 2000. He helped pick up the pieces during and after the crash as a senior-level executive at Critical Path, the messaging technology company that bought DocSpace, helping it survive market turmoil and eventually raise $100 million in private capital to bring the company back to profitability.

He has two degrees in engineering: a bachelor’s of science in engineering physics from Queen’s University in Kingston, Ontario; and a master’s of science degree in industrial engineering from the University of Toronto. And he spent the early part of his career doing software research at a little company called Microsoft. He’s also earned many awards, board seats and accolades, too numerous to mention here.

So what does the executive who can do anything with his career choose to do? Head a start-up e-reader and ebook company that plays the role of feisty Canadian David to the American Goliaths of Amazon, Apple and Barnes & Noble.

As founder and CEO of Kobo, Serbinis has led his company to producing some of the most popular e-readers on the market worldwide, gathering millions of ebook-buying customers and launching a device business in over a dozen countries and an ebook-selling business in nearly 200. He also successfully navigated Kobo’s $315 million sale to Rakuten, known as the Amazon of Japan.

We sat down with Serbinis to discuss why he joined the publishing industry, Kobo’s next moves and what advice he would give to Barnes & Noble.

Related: Kobo Partnership With Indie Bookstores Dwarfs Google; Not Without Issues

 

Jeremy Greenfield: While Kobo has expanded internationally and is considered the ebook market-share leader in Canada, in the world’s largest digital reading market – the U.S. – it’s thought to have a very small market-share. How big do you think Kobo’s U.S. market-share is?

Mike Serbinis: In the U.S., we believe we are, from a market share standpoint in ebooks, in the low single digits.

 

JG: What about in Canada?

MS: In Canada, among the publishers that we survey, the range is anywhere from 33% to 50-something percent. So, generally, the No. 1 position among all the top publishers.

 

JG: What about in Japan? I know that Japan is not a large ebook market right now and doesn’t look like it will be any time soon, but it’s obviously more important to you because Kobo is now owned by a Japanese firm, Rakuten.

MS: There, the answer is a little tougher to give. Japanese publishers in general are not as familiar with the practice of sharing market share numbers with us as publishers here and publishers in Europe. And before Kobo arrived last July and Amazon arrived in the fall, you’ve got this pretty large following of downloading manga and other forms of digital reading content to mobile phones – mostly feature phones but also smartphones.

On the one hand, if I just zeroed in on us versus Amazon among the publishers that give us data, sometimes we’re ahead, sometimes behind.

 

JG: How important is Japan to Kobo? Is it more important than the size of its ebook market in comparison to other countries?

MS: The short answer is yes.

 

JG: What’s going on with ebooks over there? For such a technological society you’d figure adoption would be swift. But it’s not. Quite the opposite, in fact.

MS: It’s definitely slower than other markets in terms of its ramp and it really starts with the publishing community. To give you a sense, from a digital content availability perspective, we have about 130,000 titles that are Japanese language titles. And that would be among the biggest catalogs in Japan. However, if you compare that to the percentage of books in the top 5,000 to a comparable market like Italy – a market that’s just started in ebooks – the Japanese market is behind. 130,000 is a big number, but in other markets, the coverage of that top 1,000 or top 5,000 physical book list is 80% to 90%. You don’t get that in Japan.

 

JG: Why?

MS: There is no simultaneous release of ebooks and print books; that’s not a consistent practice for Japanese publishers. We saw that start in the U.S. three-to-four years ago. We’re working with publishers to try and address that.

The other factor is that a lot of Japanese publishers haven’t digitized their front-list let alone their back-list. The conversion or digitization process is underway but far from being complete. It really took some time to get to standardization and support for EPUB3.

That’s a long-winded answer to say that content is a big part of it and the market based on where publishers are at just isn’t there yet. And that affects the consumer because they go to the store to buy a best-seller that they see written about or in an ad and they see that it’s not there [not available as an ebook] and they walk away thinking, “this ebook thing isn’t ready yet.”

 

JG: We’ve reported that there are some cultural issues as well.

MS: Culturally, there are also some factors. Physical books are available in a wide range of formats, especially for commuters, from local newsstands and they’re relatively inexpensive and convenient and there’s a long-standing culture around that. The typical portability and convenience benefit you get out of ebooks…in Japan they’re not as meaningful to a culture that is used to picking up a manga on the way to work and a manga on the way home.

On the other end of the spectrum there are the print traditionalists. They love the feel, the smell and look of the book. In Japan, that segment is huge. It’s the dominant segment.

Rakuten’s CEO has a desire to help transform the world of books in Japan and export what is really valuable about Japanese culture around the world through our platform.

 

JG: How many countries are you in now?

MS: We sell our ebooks in 190 countries, which pretty much means every country. We sell the devices in more than a dozen. There’s about a dozen countries where we have full-blown Kobo territory partners [Fnac in France, for instance] and there are some other countries that we sell the devices in general.

 

JG: Can you give me an indication of international growth plans for Kobo in 2013 and 2014?

MS: We’re in 12 countries today with territory partners and we’re selling in about 24. I expect to almost double that next year.

In 2015? I don’t see the number doubling again. You start to get diminishing returns entering smaller markets. The number of countries will probably grow by another 50% in 2014. Some of the countries we have our eye on this year have a billion people in them. While they count for “one” in this conversation, they actually count for ten-to-twenty from a scale and difficulty standpoint. They’re multi-lingual, there are many states.

 

JG: Why don’t you just say, “we’re going into India this year”?

MS: India is one we’ve talked about. China and Russia are others. Those are the big ones on the list. In our experience, sometimes this stuff happens faster than you think, sometimes it happens slower than you think but it’s not always totally under our control. It’s safe to say that before the next holiday season we expect to be in those countries.

 

JG: Speaking of international, is Tolino in Germany a threat?

MS: In my experience, these multi-headed consortiums struggle to succeed.

 

JG: What is Kobo’s plan to grow market-share in the U.S. in the next year or two?

MS: Compared to our biggest [revenue-generating] market, the U.S. is five or six times smaller. When we’ve gone around the world and planted these other international seeds, we generally can build share positions that are in the range of 30% to 50%, much bigger share positions than we have in the U.S. We have started to sell in indie booksellers through a new partnership with the American Booksellers Association, adding to the existing distribution we’ve had.

We’ve never really spent any money to increase our profile in the U.S. Everything we’ve had here has been organic or once upon a time from our friends at Borders. As of the end of last year – the first stores lit up in Oct. – we had somewhere North of 450-to-460 ABA stores signed up and selling Kobo.

And there are a lot of other potential book partners. We signed a deal at the end of 2012 with Family Christian, a chain of about 300 bookstores in the U.S. that specializes in the religious segment. We’re looking to increase distribution through both booksellers and non-traditional booksellers.

 

JG: How’s it going with the ABA? It seems like Barnes & Noble has had trouble selling its devices through its bookstores, which are much larger than most indies.

MS: This is something that we’ve really witnessed across a range of bookstores that sell Kobo around the world: It’s not so much the size of the bookstore that matters as it is the quality of the local customer base and the store’s individual ability to sell. And we have some small ABA bookshops that are doing as well as a large format Chapters in Canada or WHSmith in the UK. One store of 1,000 or 2,000 square feet could easily match or outsell those stores.

And we’ve been rolling out training and giving them the playbook on how to get there. There are some like Powell’s that have built out big Kobo displays and across their eight-to-nine stores they’re selling well.

Related: Kobo Partnership With Indie Bookstores Dwarfs Google; Not Without Issues

JG: It sounds like you’re happy with how Kobo devices are selling in stores. Would you be so bold as to offer Barnes & Noble any advice on that front?

MS: I’m not going to offer them any advice.

 

JG: Fair enough. Barnes & Noble seems to be floundering in the U.S. – do you see this as an opportunity for Kobo?

MS: I absolutely think there’s an opportunity.

If you’re selling fewer devices, I’ve got news for you: This is still a very device-driven business. You’re going to have fewer new customers and you’re going to lose share, especially if everyone else is growing.

 

JG: We’ve seen a huge drop-off in e-reader sales across the board. At the same time, tablet sales are exploding. How is the Kobo Arc doing?

MS: So far, we’re pretty happy with how the Arc is doing.

We started selling the Arc – it hit Canada and the UK and France in November and early December, so we didn’t really have a lot of time selling it prior to Christmas. Our family of devices last year – yes, we had Arc in the mix, but we really doubled down on the e-reader last year with the Mini and the Glo and our Touch product. We had a wide range of price points and a device for everybody. The hero for us was the e-reader. We doubled year over year and in December we nearly tripled.

That’s what increased our market share past the others. Kobo is the No. 2 seller of e-readers worldwide*.

That is not what Barnes & Noble did. Of the stores I walked into, there was one Simple Touch being demoed out of 16 demo stations.

 

JG: Will you be releasing a new version of the Arc soon?

MS: We don’t comment on the roadmap, but generally speaking we’re absolutely going to continue evolving our tablets and introducing new models.

We acquired Aquafadas last year, the leading rich media ebook platform in France. They have all the tools and the publishing platform and they help publishers put out magazines, kids books, comics, etc. We did that acquisition because of where we thought things were going in terms of more rich multimedia content. It’s more than just ebook content now. We know that when a physical book goes digital, it doesn’t necessarily go only into an EPUB. It becomes a game, an app, etc.

 

JG: Now that you have the power to set more of the prices for the ebooks you sell, how have you been taking advantage of that?

MS: My marketing team would say that they’re really happy to have more control. Of course, there’s the potential for margins to get depressed but there’s certainly a lot more potential to be creative around the kinds of promotions and the kinds of models you can offer – bundling options between devices and content – there’s a lot more you can do that we couldn’t do in the previous world. We’re most looking at this from an innovation standpoint around promoting ebooks and getting different kinds and different segments on board with ebooks.

There’s also the opportunity to become very efficient pricing experts when it comes to ebooks and optimizing price across a category, across a genre or segment or country. We’re looking for ways to be very competitive on price from a minute-to-minute basis. And we’re being creative on how we can promote and attract new readers.

Related: Macmillan Books Now Being Discounted 

 

JG: Let’s switch gears and talk a bit about your career. Your CV reads like that of someone who can write his own ticket. Why books? Why not social networking or some other digital area?

MS: There’s a story behind everything. For me, I’ve always been a book lover and lifelong reader. I lived in the Bay Area in California for the better part of a decade. I got to work with Elon Musk and started a search company and sold it and got to do something else after that – DocSpace (like dropbox but 10 years ago). I learned that for me it’s more fun building companies than just selling products.

After Docspace, I met my wife. She was in New York City and working for one of the investment banks. I was in San Francisco and it was a setup. I felt like a total nerd being set up. We decided to move back to Toronto because we were both Canadian. When I came back, one of my first conversations was with the woman who started the national chain of bookstores here – Chapters, Indigo – [Heather Reisman] and we just had this awesome, mind-blowing conversation which lasted four hours. Lunch became drinks and we were just riffing on what happened when books go digital. The thing that was really attractive to me was that this is going to be a massive, 25-year transformation and that it will touch everyone. This is going to affect my kids and my kids’ kids. And it would be something big to work on and if I did nothing else after building this company and growing it to billions and billions and touching every kid in India and China, then it would be great because it would be a massive thing. Thirty-seven months later, since we founded Kobo, it’s been all that and then some. We’re far from being done.

 

JG: Digital rights management – Kobo’s thoughts? Your thoughts?

MS: Our publishers have the option to make any and all of their books DRM-free, but most of them don’t. Most of them choose to apply DRM. We have a global purview on where that matters and where that doesn’t. The way DRM exists today, it doesn’t get in my way. But, regardless, the behavior around ebooks, I’ve found with respect to DRM and piracy, has largely to do with price and convenience. Where ebooks are very expensive and through a combination of factors it’s inconvenient, piracy is crazy. Where it is convenient and prices are low, there’s almost no piracy.

 

JG: How is Kobo’s self-publishing platform Writing Life going? Will it help bring exclusive content to Kobo?

MS: It’s going great – better than even I thought it would go. It’s been eight months. When other people launched theirs we were [as a company] 1.5 years old and we had other things to do.

Authors love it. We provide a ton of stats and dashboards and control – more so than they get from other platforms. We are somewhere around 100,000 books and we’ve probably added 100 books since we started talking. It’s from about 60 countries that we have authors submitting. We have it in six languages. We haven’t brought it to Japan yet but we’re going to try to do that this year. In some countries, our ebook units sold from Writing Life are on par with one of the big-six publishers. In one of our countries, self-published books [as a category] is beating the largest publishers.

 

JG: What are you reading and on what platform?

MS: I am reading Vince Flynn’s Memorial Day which is part of the Mitch Rapp series and I cannot put this series down. I’m reading it on my Kobo Glo. I did 44 hours of flying out of 144 hours last week. I tore through several of them [the Mitch Rapp books]. Not one movie watched. I normally get at least one movie in on a flight to Tokyo.

* Source: Digitimes

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