Does the Acquisition of BookLamp Signal Apple’s Entry Into the Ebook Subscription Service Market?

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In March of this year, shortly before Apple bought ebook recommendation start-up BookLamp, music subscription champion Spotify made a very similar acquisition. Spotify bought music recommendation service Echonest of Cambridge, MA. for approximately $100 million and with it secured the industry’s leading music recommendation and data mining service. Why?

Many think that recommendation services are great for online retailers, but in reality they provide only a minor uplift to companies selling music, videos or books a la carte. However, recommendations are crucial to the revenue of media subscription services.

Subscription services spend a lot of marketing dollars acquiring users to pay about $9.99 per month (sometimes a bit more, sometimes a bit less). The customer acquisition cost or CAC can be quite substantial and the key to a successful service is to keep those customers and prevent them from unsubscribing or “churning”. Short of dodgy tactics such as making it really, really tough to cancel (think Internet service providers and cable companies), the best “churn avoidance” strategy is to make sure subscribers always have something interesting to listen to, watch or read at the press of a button and with almost no effort required by the user.

This has been a working principle in the industry since the first music streaming services such as Rhapsody launched over ten years ago. The number of playlists a user created at Rhapsody was directly proportional to their loyalty. Later social media led to shared playlists and thus greater loyalty and use of subscription services. It wasn’t long until subscriptions services discovered that recommendations would lead to even greater loyalty. This is why Spotify bought recommendation service Echonest and why it earlier bought playlist discovery app Tunigo.

The same is also true of Netflix, which has poured a huge amount of resources into creating a great recommendation and, notably, a recommendation services that doesn’t serve up the “best movies” but the most appropriate stuff to watch (e.g. “easy watching” on a Wednesday evening after a long day at work). A great recommendation is especially crucial to a service that mostly offers back-catalog content, as Netflix does, rather than the latest blockbusters.

The key is not delivering the “best stuff” but “relevant stuff” to keep users engaged.

The same principle applies to ebook subscription services. Serving up relevant recommendations (and sometimes that means genre fiction rather than literary fiction) is critical to keeping subscribers engaged. Thus the acquisition of BookLamp by Apple could possibly herald Apple’s entry into ebook subscription services.

Admittedly this is all conjecture, but let’s wait and see. There is good chance that Apple will launch an ebook subscription service by the fourth quarter of this year. Based on what Kindle Unlimited, Oyster, Scribd and others cost, it’s probably going to cost $9.99 per month. Apple might even get the back-list (though almost certainly not the front-list) from some of the “big five” publishers in an attempt by the latter to create a counterweight to Amazon’s monopsony power.

However, I still stand by my earlier DBW analysis of the economics behind ebook subscription services and my hunch that we won’t see front-list titles from the major publishers appearing anytime soon.

Also, I don’t think we will see Apple paying 70% of list price for any ebook loaned under an all-you-can-read service. An ebook subscription service by Apple, if it happens, will also mean a major shift in commercial terms compared to what we have seen Oyster and Scribd agree to. Terms will probably be based on a revenue-sharing model that disburses 70% of net revenues to publishers according to some complicated formula reflecting consumption by users.

Andrew Rhomberg

About Andrew Rhomberg

Andrew is the founder of Jellybooks, a start-up focused on exploring, sampling and sharing ebooks. He previously worked at txtr (whitelabel ebook retail platform), Skype (internet telephony), Reciva (internet radio), gate5 (now Nokia Maps), and Shell (oil). He holds a science Ph.D. from MIT. Follow him on Twitter at @arhomberg.

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One thought on “Does the Acquisition of BookLamp Signal Apple’s Entry Into the Ebook Subscription Service Market?

  1. Interesting news. I’d love to see Apple provide a counterweight to Amazon’s plans.

    I agree that buying an ebook (that 70% of retail) to loan it but once is a monumentally stupid business model. That may get publishers with bestsellers to sign up, but it also means that high-cost readers— those who like to read pricey new bestsellers—are most likely to sign up. The resulting high operating costs mean high subscription costs which in turn will attract only high-cost subscribers, a deadly circle. It’d be a bit like an all-you-can-eat buffet restaurant putting caviar on the menu.

    I like that of the upstart Inkbok much better:

    \Each month, Inkbok takes 60% of gross proceeds (from ALL sources) and pays authors/publishers royalties according to the number of times their work has been read; 85% of this amount goes to authors/publishers of books, and 15% goes to authors of periodicals, short stories, poems, papers, articles etc.\ https://inkbok.com/how-inkbok-works

    With 10% going to charity and 30% to Inkbok, that’s a model that has a chance of succeeding. I also like that they have a free area to draw in new subscribers and are charging but $4.95, which I suspect is closer to the sweet spot for ebooks than $9.95. Now if they can just finish their mobile readers.

    My own hunch is that selling movies, music, and ebooks to individuals separately, which is the current business fad, isn’t the way to go. People lump all those into the entertainment sector of their lives, so it makes sense to combine all three under one subscription. Some people will watch more movies but congratulate themselves for getting their occasional ebook under the same plan. For others, the opposite will be true or their music taste will matter most. For one price, people get what they want most and what they need occasionally.

    That universal subscription will, I suspect, be more appealing than attempting to get people to sign up for all three (or maybe two of the three) separately. After all, they will think, I can’t read a book and watch a movie at the same time. Why should I pay for two services when I’m never using more than one?

    I also suspect success will come to those who create household/family plans. And by that, I don’t mean one size-fits-all plans. I mean plans in which little Susie and Bobbie get access to movies and ebooks, but only those appropriate for them. Parents are also more likely to sign up if there’s something for them and something for their kids–especially when that something includes both movies for rainy-day fun and ebooks for school.

    This multiple-services with one subscription model clearly favors giants like Amazon and Apple, especially those who’re already offering, for sale if not for subscription, at least two of the three media. It also favors those big enough to afford top-quality front-ends for their subscriptions.

    The smaller companies may end up being forced to specialize in some way. Inkbok is likely to be most attractive to independents who write fiction. That will draw in those who read that. Others may want to specialize in a genre like thriller, romance or sci-fi. They’ll balance out their limited selection with lower prices and finding aids for readers, the \if you like that author, you may like this one too\ sort of thing. That’ll help deal with the chief problem of digital. I can browse shelves in a physical library, glancing around and pulling out books with interesting titles. That’s harder to do when the books are digital bits and bytes.

    At any rate, we live in what the Chinese call ‘interesting times.’ No one knows for sure which way the winds will blow.

    –Michael W. Perry, Inkling Books

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