Apple’s iPhone 3.0 – a tipping point for a beleaguered publishing industry?

 

At a St. Patrick’s Day press event in Cupertino, Apple announced the developer beta of iPhone OS 3.0.

The implications for the publishing industry are huge but extremely welcome. Ultimately, today’s announcement will be seen as a tipping point for an industry that is facing massive economic havoc caused by the combined impact of the Internet and the current economic recession. 

The critical part of today’s announcement for publishers is the ability to leverage the purchase model of the App Store within individual apps. In-App Purchases now allow developers (and media publishers) to offer subscription content and provides the ability to sell new content and features in a simple and secure process.  Before this announcement, publishers could not easily monetize their mobile content via a paid model. Now, a paid content model on mobile has opened up for media companies. 

For the last fifteen years, publishers have watched with anguish as the free content model of the Internet wrecked havoc with their businesses. Initially, online advertising provided some economic support for the cost of content creation but analogue dollars rapidly converted to digital pennies  (it appears we've now moved up to digital dimes) The majority of online revenues have gone mainly to the search engines rather than to traditional media companies who create the original content. Lost subscription and newsstand revenues, plus reduced online advertising revenues (in overall dollar terms) cannot compensate for the collapse of print revenues. Some B2B publishers, such as my previous employer, International Data Group fared better as they focused on performance based revenue streams, especially around lead generation.

Many publishers’ inability to adapt quickly to the changes brought about by the internet is part of the problem – but it’s hard to compete with free and it’s really difficult to break a highly profitable cash generating model for one with uncertain revenues and profits.

The transition from print to online is challenged under today’s business models. Some argue that print can be fixed by changing the business model. However, I don’t subscribe to that view. Print is not “dead” but is much less relevant as a medium for the consumption and creation of content.

Today, nearly all publishing is digital publishing and nearly all writing is for digital media. Publishers have to adapt to the realities around them, not cling unrealistically to a previous era.

Now, we’re about to go into another media transition. Online is now fairly well established but mobile is about to surge.

Mobile is the 7th of the Mass Media , and it offers publishers the opportunity to redefine their businesses and to really learn from some of the mistakes during the era of print to online transition.

The good news is that users’ psychology around mobile is very different to how they view online – they are actually willing (or have been conditioned) to pay for stuff – for SMS, for ringtones, for music, for games, for content – either via the carriers or as Apple’s iTunes has shown, via a convenient online storefront that is completely separate from the carriers.

Through the iTunes store, users can purchase music, movies, audio books, and iPhone applications. It’s a breeze to use and integrated well with both your computer and iPhone.

Today there are approximately 28,000 apps of which around 75% are paid apps. Excluding the free apps, the average price of paid apps is a little under $4. According to Apple, 800,000,000 apps have been downloaded and while the majority of downloads are for free, if even 10% of these downloads are paid, assuming an average of $4, that represents approximately gross revenues of $320MM. Apple takes 30%. It’s not hard to see this growing to a multi-billion dollar business over the next few years.

As the number of apps grows rapidly there is increasing concern over discovery. If you are selling a game app for $0.99 you are competing with another 6,000. So unless you get on the top 25 list or are a featured app it’s extremely hard to get noticed.  The Apps Store is not currently searchable by the various search engines, so the concept of Apps Store Optimization (ASO) is not developed – yet.

Apple’s taxonomy and sub-categorization leaves much to be desired and the interface is based more around a browse than a search metaphor. But, despite these and other go-to-market challenges currently facing developers, the Apps Store, coupled with 30 million iPhones and iPod Touch devices is a huge addressable market and growing rapidly. It can’t be ignored.

Today’s announcement, plus an expected upgrade to the iPhone in the summer will ensure solid momentum for the product with the other handset manufacturers scrambling to play catch-up.

For publishers, the subscription model available with the Apps Store helps answer the question of whether to mobilize a web page or develop an app. While my recommendation is that publishers need to develop a very comprehensive mobile strategy, the revenue streams are more likely to be from a paid app that from advertising off a mobilized web page.

Mobile digital content is really starting to take off. Over the last several weeks, there has been a lot of activity in the e-book market. It’s largely driven by the publicity around the release of Amazon’s Kindle 2 and the accompanying iPhone application but other news includes the acquisition of Fictionwise and e-reader by Barnes and Noble. Google marches ahead with their digital book archive project and digital book search but it’s still unclear if their motivation is to be an online e-book retailer or it's perhaps more likely that they are using digitalization of books to improve their search algorithms.

While e-book industry is still struggling with format and DRM issues these are gradually getting resolved. The ePub format is fast becoming the general standard – adopted by the International Digital Publishing Forum and The Association of American Publishers. Various other formats such as pdf, Adobe Digital Edition, MobiPocket and Microsoft Reader continue exist because of DRM issues but publishers will who write to the ePub standard first using programs such as Adobe’s Creative Studio can fairly easily convert to the other formats or go through a service such as LibreDigital  who will manage conversion and distribution on publishers’ behalf.

While Amazon has a proprietary format and is enforcing DRM, to the point that it’s not possible to transfer books purchased in other formats to the Kindle, many hope that eventually users’ interests will prevail over corporate shortsightedness.

The current crop of e-readers, using e-ink technology offers a reasonable experience for trade book reading – as only text display is necessary. However, the current grayscale displays offer less than optimal experience for those wanting to view digital copies of reference books, textbooks, Science, Technical and Medical (STM) books and newspapers and magazines with images. 

Existing large format devices such as the iRex iLiad and upcoming readers from PlasticLogic,  Hearst’s FirstPaper Device are trying to appeal to the business market, especially those requiring a larger reading screen. 

The ability to transfer a pdf to the Kindle via Amazon’s free service negates a lot of their advertised advantages. Transferring and reading pdfs on a Kindle is a perfectly acceptable experience for now.

I don’t think the Kindle or the current crop of e-readers is the white knight for publishers but Apple and the iPhone 3.0 could be the necessary catalyst.

For those interested in trends in the e-book industry see the following presentations from the International Digital Publishing Forum and BookNet Canada.

The mobile Internet device (MIDs) market is evolving rapidly although the limitations of the current crop of black-and-white e-readers have many yearning for a tablet or netbook device from Apple – an iPod Touch on steroids.

Although Apple’s CEO, Steve Jobs has been disdainful of the e-book market in the past – most understand that Apple will carefully analyze the market and if it believes the market is significant the organization will come in with a vastly improved solution. However,  a combination of technology issues, component pricing plus the economy could delay what many believe is an inevitable move by Apple.

There is a collision going on in the market – the carriers, especially in Europe, are looking to subsidized netbooks to drive data revenue streams. Netbooks, spurred on by the One Laptop Per Child (OLPC) program are generally dumbed down but inexpensive Internet access devices, (price points around are  $299). They have basic communications and Internet access but with limited storage and processing power. 

Most major PC companies are producing small laptops – called by a variety of names – UltraMobilePCs (UMPCs), “Litebooks”, “PocketBooks“ or mini notebooks, which while more expensive than Netbooks, have the functionality expected of laptops/ notebooks.

For the PC companies it’s a balancing act – these mini-notebooks have lower prices and margins than their standard laptop offerings so while consumer demand appears to be strong, the PC companies have to manage their bottom line.

The success of Apple’s iPhone plus their Apps store, the impact on other handset manufacturers, the growth of e-ink readers, the consumer demand for Netbooks and Mini-notebooks all adds up to the increased consumption of content via mobile devices.

Only a fool would try and accurately predict the future but the trends we see today are going to shape the media industry over the next 5-10 years.

Mobile is a game changer. Mobile devices (and there will be many varieties) benefit from being personal, always-on, always carried, and location aware. They can act as a mobile wallet and they allow you create and upload content to your social and business networks.

Mobile will redefine our understanding of the Internet and personal communications.

Publishers need to start really thinking through their mobile strategies.

Media companies need to plan how they can best serve their audiences via mobile access. The user interface and user experience will be critical. Many publishers learned the hard way that online is not taking a print magazine or newspaper and making it digital. Online, thanks to search and interactivity, is a different medium and content has to address the user experience. Mobile is not an online site mobilized. The medium is different yet again and a lot of research has to be spent understanding the needs of mobile users.

The industry’s key organizations, the Newspaper Association of America, the Magazine Publishers of Amerce (MPA), the American Business Media, the Interactive Advertising Bureau and the Mobile Marketing Association and others can and should take a leadership position helping to guide their members through this exciting period in our industry.