Direct-response modeling

Last month, Kobo made a set of content and technology announcements, including news that it was going to start selling a deluxe e-reading tablet this fall. At paidcontent, Laura Hazard Owen counted herself a skeptic, in a piece titled "Come on, Kobo, a $399 tablet?" Really?"

Although my own reaction differed, I find Owen's publishing assessments to be typically spot on. Earlier this summer, she wrote what I found to be the only comprehensive critique of Barnes & Noble's failed digital strategy. Both for her reliability and this recent history, Owen's Kobo critique stuck with me.

I came back to her article last week, after my consulting colleague Ava Seave contacted me to talk about a post (now two) that she was writing about Kobo for her Forbes.com column. Seave also interviewed Todd Humphrey, Kobo's executive vice present of business development, who told her:

The moment we put a Kobo device into that person’s hands, they simply buy more books from us. We realized early on that that was important.

Detractors sometimes use this direct-response perspective in reverse against Amazon: "They don't care how much people pay for books; the company wants to sell more hardware, and cheaper content helps them do that."

Kobo (and Amazon) have the ability to track not just the sales of devices, but the sales of content on those devices. It might be the case that the market for a $399 tablet is small, but if the data shows Kobo that those tablet owners buy more or higher-priced content (illustrated books, for example), the company may find the investment worthwhile.

The core notion is this: to understand the value of a device, we have to understand the entire value proposition of an e-reading ecosystem. Kindle and Kobo are (small) parts of e-retailing giants, both with global ambitions. Understanding their strategies for books probably means understanding international markets, trends in e-retailing outside the United States and content consumption habits in places where the alphabet doesn't exist.

I don't know if a high-end, $399 tablet makes sense in the current market. Owen is right to ask whether anyone will buy the device. But Seave presents a part of the story that established retailers (like Barnes & Noble) could have forgotten to track: the device might drive more content sales.

A bit of disclosure: Ava Seave and I have worked together on a number of consulting assignments, and I am an associate with Quantum Media, the firm where she is a principal. In late 2011 and early 2012 I provided consulting support for Kobo. Seave had no involvement in the preparation of this post, and all of the information presented here is based on public sources.

About Brian O'Leary

Founder and principal of Magellan Media Consulting, Brian O’Leary helps enterprises with media and publishing components capitalize on the power of content. A veteran of more than 30 years in the publishing industry and a prolific content producer himself, Brian leverages the breadth and depth of his experience to deliver innovative content solutions.

2 thoughts on “Direct-response modeling

  1. Hi Brian,

    In January 2014 the Pew Research Center’s Internet and American Life Project published a report, E-Reading Rises as Device Ownership Jumps (http://www.pewinternet.org/2014/01/16/e-reading-rises-as-device-ownership-jumps/). It shows the strong correlation between types of mobile devices and readership, although they didn’t survey for purchases. Ereader owners, not surprisingly, read far more often (and for longer) on their devices than do tablets owners and smartphone owners.

    For purchases I’ve got a slide from a Nielsen report (that I can’t located online) headlined “Device Share of U.S. Book Purchases” showing ereaders at 35%, tablets at 42% and smartphones at 7%. This doesn’t directly address the point of whether a users purchases increase after they buy a device, but Todd Humphrey’s quote that “they simply buy more books from us” is widely reflected in other conversations I’ve had.

    1. I think the idea of “growing the pie” by lowering or removing barriers to discovery and purchase is still one that the book business as a whole struggles to understand. There are good historical examples of publishers that have created new categories by making products less expensive (mass-market paperbacks, as an example) or more accessible (Harlequin’s pioneering efforts to sell its series in retail outlets), and in these instances sales grew as they satisfied what had previously been untapped demand. I think there are more opportunities to come.

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