The e-book market is hampered by immature, expensive technology and a limited number of people willing to consider reading books on electronic devices rather than on paper.
This market remains mired in its first generation, where the main users are either technophiles or users with highly specialized needs who are willing to put up with technical inadequacies and high costs.
We expect a shift to the second generation during the next two to three years, with products achieving a somewhat wider appeal. In three to five years, we anticipate that the marketplace will be invigorated by better, lower-cost technologies, more research into form factors, the advent of faster wireless technology to support on-demand access to e-books, and growth in the number of people who are comfortable with handheld devices in general. Until we reach this third-generation stage, however, e-books will remain a niche market.
The leading edge of the e-book market is exemplified by companies such as Gemstar, which sells dedicated devices for reading books, and Adobe Systems and Microsoft, which provide font display and format technology. Dedicated devices provide a better display, but few people are willing to spend significant money for a device that displays only books, with a significantly inferior user experience and little or no savings on content compared to "real" paper books.
We believe e-books will become more prevalent as the cost of the reading devices goes down. However, at $200 to $700 apiece, these devices are still too expensive for the average consumer, thereby limiting widespread acceptance.
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Incremental advances in technology as well as emerging technologies now in the laboratory such as "electronic paper" may provide the basis for this kind of third-generation device. However, this type of device is unlikely to appear before 2005.
PDAs at the ready
Another approach to e-books takes advantage of the burgeoning PDA (portable digital assistant) market. These devices can use software from companies such as Peanutpress.com (recently acquired by Palm), Adobe and Microsoft to provide reader capabilities for Palm and Pocket PC platforms. Currently, these software "readers" are typically free of charge, enabling PDA devices to gain e-book functions at no additional cost.
Because PDAs fulfill multiple functions beyond acting as an e-book reader, users are willing to spend more money on the device. However, the consumer market for PDA-based e-publishing is severely limited by the small displays of current PDAs, which makes reading these books difficult.
For instance, screen size of PDAs is much too small to support speed-reading techniques, and display readability is significantly worse than that of a portable computer display, much less a printed book. However, we expect these technologies to have a strong adoption rate in corporations, partly to support e-publishing, in 2003-04.
The Tablet PC platform due to be released by Microsoft at the end of 2002 may become another possible avenue for e-publishing delivery. The Tablet is expected to have all the functions of a laptop packed into a system the size of a clipboard. It will be an 8.5-by-11-inch notebook that is expected to weigh between 1 and 1.5 pounds. Tablet PCs will be priced initially as a high-end notebook computer replacement. Manufacturers may also choose to make a limited version that provides only the reader functionality.
Hybrids in the wings
The evolution of devices is only part of the e-book equation. Currently, the content values of an e-book and paper book are equivalent. Development of hybrid content models that bring together text and audio (and possibly video) could provide a unique experience not available to readers of paper books.
Meanwhile, the latest Microsoft technology provides much better print display than previous electronic technologies. And voice-synthesis software, already available for PCs and laptops, could be added to book readers and PDAs to enable them to read books aloud to users. If offered at the right price, this would expand the audience for e-books. Indeed, we expect that this "books on tape" ability will be a key driver in expanding the market for second-generation e-books over the next two to three years.
Content-distribution mechanisms have also been slowly evolving. Books offered by commercial sites such as Peanutpress.com are typically two-thirds the cost of the paper editions and include books by top-selling authors such as Stephen King.
Many classic books no longer under copyright are available for free as text files that can easily be downloaded from sites such as the University of Pennsylvania's On-Line Books Page, the University of Virginia's Electronic Text Center, Project Gutenberg and AOL Time Warner's PDA library. These text files can easily be converted to formats readable in PDAs. Additionally, huge numbers of electronic texts available in Adobe PDF format can now be read on Palm OS devices using the Acrobat Reader.
Still, e-book content distribution is playing catch-up to match the library of titles and points of distribution available for paper books. To differentiate themselves and add unique value, e-book content vendors will need to look outside this model. The emergence of pervasive computing technologies to embed systems into automobiles (such as General Motors' OnStar system or XM Satellite Radio), hotels and airline clubs provides new potential distribution points.
Downloading an "e-book" that can be listened to in the car, then downloaded into a handheld device and possibly uploaded again and even printed could provide a degree of flexibility that attracts a broader user base. Farther out in the future, readers could conceivably use holographic projection or heads-up displays on glasses to project the image of book pages, creating a much larger "display" than any pocket-sized screen could produce.
We caution, however, that such hybrid distribution models, like hybrid content models, are in the conceptual stage and unlikely to emerge until 2005--if ever. During the next few years, technical users and higher educational institutions will be the initial adopters for e-book technologies. In the meantime, Global 2000 companies must develop a strategy of storing and securing content to be distributed in multiple environments.
In the near term
We believe that e-publishing of nonfiction books (rather than fiction) will develop via hybrid paper/electronic forms in the next five years, particularly in academia. E-publishing can be used to provide frequent updates to paper-based textbooks as well as multimedia materials and hypertext links to support nonlinear learning, recognizing that different students learn in different ways and at different speeds.
Companies with intellectual content in electronic form that may want to distribute it in formats readable on PDAs or specialized book readers should treat this as a niche consumer market for the next five years. However, e-book publishing will become a useful alternative to paper publishing for reaching targeted business audiences equipped with PDAs either as a pure e-publishing or hybrid publishing effort. For instance, companies can send updates of paper technical manuals to field technical staff via e-publishing.
Therefore, companies may want to track e-publishing along with other aspects of pervasive computing, and eventually may find e-publishing to be an effective means of distributing some intellectual property to specific target audiences.
Meta Group analysts David Cearley, Val Sribar, Dale Kutnick, Timothy Hickernell, Elizabeth Sun and William Zachmann contributed to this article.
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