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