Entrepreneurs Forum

War of the words

Friday 6 July 2012 10:00

Global e-book empire Kobo talks exclusively to Andrew Mernin about wrestling Amazonians, tech giants and traditionalists for market dominance.

Chapter one begins with a band of explorers crossing the raging sea to this misty isle of ours. Cast in the ink of Jules Verne adventurers, they land with new ideas and shiny goods to trade with the natives.

Several pages of harmony then pass before the literary turning point – a second and then a third expedition across the Atlantic.

Before long a battle looms. Not across Britain’s rolling fields, but in the domain of Rowling, Murakami and friends; a world of coffee cups, silence and plot.

The fight for the hearts of minds of Britain’s readers is as fierce as it is fast moving. Amazon (Kindle) and Apple (iPad) are the all-conquering superpowers encompassing e-books within the rank and file of their many other fortes.

And standing between them and global dominance, like a gang of courageous Tolkien misfits, is team Kobo.

Unlike the dominant forces on the battlefield and electronics firms like Sony, Kobo is a purist. E-books and e-book readers are its only concern.

And here in Britain it continues to threaten the established order, drawing its strength from a flourishing partnership with WH Smith.

kobo INSETThe Toronto firm was launched in 2009 and, following a meteoric rise to power, was sold last November by its then-shareholders to Japan’s biggest internet retailer, Rakuten, for £168m.

“The UK is a really important market for us,” says executive vice president Todd Humphrey on a territory which saw a 54% rise in all e-book sales to £243m in 2011.

“The UK is unique in that it was a little bit more advanced than France or Germany in terms of the saturation of e-reading but the acceleration of sales is greater.”

Much of Kobo’s success here can be attributed to what was coined a ‘Kindle killing’ deal with WH Smith agreed last October.

“Our biggest challenge was structuring a deal with WH Smith that was mutually beneficial and we both spent a lot of time navigating general publishing just to make sure that we were going to hit the market with the right product, the right offering, at the right time at the right price.

“For us it was about choosing the right partner and believe me we had a number of different options. But at the end of the day [we chose] WH Smith because of its travel locations, high street locations, 11,000 stores and its reputation as a bookseller.”

The high street chain’s chief executive Kate Swann said at the time that the arrangement would complement its traditional books business. For Kobo, though, it opened its library of around 2.5m books to a rapidly growing new market.

Humphrey tells BQ: “WH Smith was the big breakthrough. We worked really hard to put in place a partnership that was going to benefit both companies and it’s a really critical partnership for us.”

He adds that the dire financial state of the UK High Street were not a major concern, with both sides of the partnership looking for longevity.

“They wanted to get assurances from us that we were in this for the long haul and that we were committed to the territory.

"We knew all along was that the UK consumers, book lovers and book buyers were ready for this and WH Smith had people streaming into their stores looking for e-readers.”

While Kobo now sells from other UK retailers such as John Lewis, its major rival, Amazon, recently signed a tie-up similar to the WH Smith deal, with Waterstones.

Customers can now buy Kindle e-readers and access free Wi-Fi in the store to download e-books on the spot. For Humphrey, UK market share seems a sensitive subject.

“We really don’t know what our competitors number look like. I wish I could give you an answer as that would mean that I would know as well but I certainly consider ourselves to be the number one or number two in the UK market,” he says.

Kobo’s current UK workforce amounts to a handful of senior figures but plans are afoot to expand the firm’s presence here, with a team of 12 expected by the end of the year and more to follow beyond that.

“I spend a lot of time travelling back and forward from London and, as much as I love the city, we aim to have more people on the ground there,” he says.

Meanwhile, Kobo’s latest market breakthrough came this week as it cracked open Japan which, despite being the land of the gadget, is strangely under developed when it comes to e-readers.

koboINSET2Sales there are expected to significantly increase Kobo’s current 9 million-strong registered customer base as its Japanese owner uses local knowledge to its advantage.

In all, Kobo has customers in 190 countries. But Humphrey says it’s impossible to talk about demographics.

“I like to think my seven-year-old daughter and my 70-year-old mom are both reading because they have Kobo devices.

“We have nursing homes asking us to send them e-readers because finally for the first time in 15 years some of the residents are able to read because they can enlarge the font size.

“It’s a great example of how technology is not taking people away from reading but is actually enhancing it globally.”

Young, old and those between are all being drawn into the e-book revolution it seems.

But what of the forgotten victims of this literary turf war?

Figures from the Booksellers Association last month showed a slide in the number of independent booksellers from 1,159 at the end of 2010 to 1,094 by the end of last year – in 2009 the figure stood at 1,289. Meanwhile in America – the most bookish of nations – annual sales of adult e-books have just surpassed those of adult hardbacks for the first time, by over US$50m in Q1 2012.

“We are the only company in the world that focuses on e-readers 24 hours a day as a competitive standalone business.

"With that we are great lovers of books and booksellers and so I don’t think the bookstore is going away. People still love walking through a bookstore and buying a hard cover book but what’s happening is that book buyers are reading more. [Clearly] publishers have to adapt and diversify their book business a little.”

Libraries too, says Humphrey, must embrace new technology in the UK as they are in the US in line with the changing demands of readers.

No doubt such issues will continue to burn in this period of change for the written word - as will the fight for dominance in the e-reading market.

In Humphrey, Kobo has on its side an executive who knows the competition better than most. The Canadian spent around a year at Amazon prior to joining Kobo in 2010. Although he didn’t work directly on the Kindle, he did get a good grasp of what Kobo is now up against.

“Amazon is fiercely competitive, has deep pockets and a will to win,” he says. “It’s great that we compete against them, I love winning against them and it’s been a lot of fun going up against them.”

And he has no reservations about Kobo’s ability compete with the global tech and e-tailing giants that have been drawn to the lucrative nature of e-reading.

“We absolutely believe that we will have more e-book customesr than any company in the world,” he says. The next instalment of the Kobo story should make for interesting reading indeed.