The Wall Street Journal
March 5, 2002


The Story So Far E-books haven't taken the reading world as quickly as
proponents hoped. But they still believe in a happy ending

By JAMES BANDLER

Mark Sorensen, a New York City financial executive, has embraced the
digital revolution with gusto. He is the proud owner of a BlackBerry
two-way pager, cellphone and DVD player. But there's one gizmo that gives
him the willies: the electronic book.

"Reading in bed is a great joy," the 37-year-old says. "I don't want to
wake up to a glowing thing on my chest."

Alas, Mr. Sorensen isn't the only one to feel that way about e-books. Few
readers are consuming the electronic texts that were supposed to relegate
paper and clothbound books to a spot alongside cuneiform clay tablets and
papyrus in a musty museum. Despite the promise of huge cost savings for
publishers (no more trees to cut, ink to squirt, books to transport and
store) as well as convenience for consumers (no more heavy volumes to
lug) e-books have failed to generate mass appeal.

The reason: Readers don't want to trade in their page turners for
tablets, the electronic devices needed to read e-books.

"It turns out ink on paper, with glued bindings, is a pretty effective
delivery technique," says Daniel O'Brien, a senior analyst at Forrester
Research Inc., in Cambridge, Mass. "Digital books are painful to read.
Most people I know who get an e-mail longer than three paragraphs hit the
print command."

Indeed, one survey last year found that a scant 4% of Internet users were
"very likely" to buy an e-book, while just 20% were "somewhat likely" to
purchase one, according to Ipsos BookTrends, a market-research firm in
Rosemont, Ill. Jupiter Media Metrix, a New York Internet research
concern, estimates that just 100,000 e-book devices were in use by the
end of last year compared with the millions that boosters had expected.
Of the $14 billion-a-year publishing industry, sales of e-book titles
aren't even a blip on the radar screen.

Lack of reader interest caused Stephen King's Internet novel "The Plant"
to wither on the electronic vine after just six chapters were posted on
his Web site, Stephenking.com ( www.stephenking.com). Last year, AOL Time
Warner Inc. and Bertelsmann AG's Random House Inc. folded their separate
e-publishing units back into their main operations. The well-funded
digital-rights and electronic-publishing start-ups NetLibrary Inc. and
Reciprocal Inc. filed for Chapter 11 bankruptcy-court protection last
year, and another venture, MightyWords Inc., also closed its doors.
MightyWords got credit for inspiring Mr. King's first and most successful
Internet publishing project, "Riding the Bullet."

And despite Mr. King's foray into e-publishing, the industry remains
haunted by the general perception that e-publishing is the preserve of
marginal writers who couldn't otherwise get their work into print. David
Card, a senior industry analyst with Jupiter, says he isn't convinced
that e-books will ever take off with mainstream readers of fiction and
nonfiction. "Maybe the idea that digital changes everything is hooey,"
Mr. Card says.

Time Will Tell

Still, e-book evangelists, led by a clutch of competitors including
software concerns Microsoft Corp., and Adobe Systems Inc. and Gemstar-TV
Guide International Inc., a Pasadena, Calif., technology and media
concern, insist it's only a matter of time before e-books catch fire.
[chart: The Paper Chase]

"Would everyone like this to be a $100 billion industry? Of course," says
James Alexander, director of e-books for Adobe. "Like all things, it's
starting slowly." Adobe's Portable Document Format, or PDF, which allows
complex documents to be transferred from computer to computer, has
emerged as a well-established standard in the publishing industry.

Dick Brass, vice president of technology and development at Microsoft,
compares the e-publishing industry's predicament to the difficulties of
the automobile industry when it first started. And he likens naysayers to
those who once predicted the triumph of horseflesh over the automobile.
"In 1908, an intelligent consumer would probably go with the horse," says
Mr. Brass. "There were a lot more places to buy oats than gas. Horses got
better mileage. But 20 years later it was hard to find a horse in a major
American city."

The same will be true for e-books, says Mr. Brass, who is sticking to
earlier predictions that sales of e-book titles will hit $1 billion by
2005, ultimately eclipsing paper and clothbound books in 2020. "I don't
believe that e-books can fail," he declares.

Lack of a Standard

For some book genres -- encyclopedias, almanacs, technical manuals and
many nonfiction titles -- e-books are naturals: They can be instantly
updated and boast hyperlinks to other sites. And the devices have lured a
following among obsessive readers of "cult" genres like science fiction
and romance. But "is a novel improved by making it interactive?" Mr. Card
of Jupiter asks. "Not really."

Digital readers of the HarperCollins nonfiction title "Reading the Bible
for the First Time," though, may enjoy having hyperlinked passages to an
electronic version of the Bible on a Web site set up by the publisher, as
well as links to the author's notes.

Travel guides could be a good fit for e-books as well. Travel publisher
Rough Guides -- which is 51% owned by Penguin Books U.K., a unit of
Pearson PLC of London -- says it has had better-than-expected sales of
its city travel guides, which may be downloaded easily to Pocket PCs,
Microsoft Windows-based hand-held devices.

"To business travelers in particular the ability to put five or 10 or
even hundreds of books on a small half-pound device is preferable to
lugging tons of guidebooks," says Jennifer Gold, director of new media
for Rough Guides in New York. "With a keyword search, say 'Chinese
restaurant' or 'Hilton Hotel,' you can get the information you need
quickly."

Digital books also may solve a big problem bedeviling the
college-textbook publishing industry: the proliferation of used books.
The format also gives teachers more flexibility to rearrange chapters,
integrate text with their own course matter, add syllabi and conduct
discussions. Major publisher commitments to electronic textbooks didn't
kick off until last year, but already several hundred titles are
available. Mr. O'Brien of Forrester Research predicts that sales of
digital textbooks will hit $1.3 billion, or 14% of all textbook sales, in
2003. By 2005, he says, e-books will account for 25% of all textbook
sales.

Fear of Being 'Napstered'

Nonetheless, e-books remain a struggling niche business. Part of the
problem is a shortage of available titles. Publishers have been reluctant
to open up their content repositories, in part because of a fear that
they will be "Napstered" by consumers freely copying and sharing titles.

That leads to another sticking point: the price of titles. Publishers
sometimes price digitized books as high or higher than the printed
variety so as not to cannibalize their print businesses. When publishers
"expect to get $25 for a string of ones and zeroes, I think they're
kidding themselves," says Mr. O'Brien.

Retailers and publishers, though, are finally starting to experiment with
pricing and marketing strategies to make e-books more attractive.
BarnesandNoble.com, for instance, in promoting former General Electric
Chairman and CEO Jack Welch's biography, "Straight From the Gut," offered
free e-book downloads to customers who preordered the hardcover books.

HarperCollins Publishers, a unit of Australian media congolmerate News
Corp., offers buy one, get one free deals on certain e-book titles and is
letting customers "test drive" free of charge the first three chapters of
any e-book title. HarperCollins kicked off its e-book publishing
operation early last year. David Steinberger, president of corporate
strategy and international for HarperCollins, says the company's e-books
tend to be priced 20% lower than the lowest-priced printed version. Mr.
Steinberger says the e-book unit has seen a "big lift" in sales recently
through promotional efforts and price discounts and is now selling
thousands of e-books a month.

Tablet vs. Pulp

Still, few people believe that the tablet will kill ink and pulp. To
date, tablets have been flops. With a cellphone, pager and hand-held
organizer, the last thing even technophiles want is an additional
electronic device. The liquid display screens on the devices also don't
make e-book reading easy on the eyes.

LCD screens are great in darkness, but almost undecipherable in bright
sunlight. In most conditions, they can't match the crispness and contrast
of printed type. As a result, printed matter remains vastly superior to
the displays of even the priciest e-books.

Then there's durability. A print book is still enjoyable after a plunge
in the hot tub, or a tumble in the sand. But spill your Dr Pepper on an
e-book, and it's kaput. Acid-free paper eventually turns yellow and
brittle but is still readable after 500 years. Digital longevity, on the
other hand, is more iffy, as anyone who has experienced a computer crash
can attest.

Competing With Paper

But there is technology on the horizon that could make the e-book
experience more like reading from ink and paper. In mid-2003, E Ink Corp.
of Cambridge, Mass., and Philips Electronics NV of the Netherlands plan
to begin shipments of hand-held devices made with low-power, highly
reflective "electronic ink." The ultimate flat screen, electronic ink is
a material that allows digitized reading matter to be read on plastic,
paper-like sheets filled with millions of tiny capsules that show either
light or dark images in response to electrical charges. By 2005, E Ink
says it plans to unveil multipurpose reading devices on a lightweight
plastic material that can be rolled up and placed in a pocket.

"Until the output begins to emulate print on paper, the digital
revolution won't take place," says James P. Iuliano, CEO of E Ink.

Some 30 other companies are working on that. So-called electronic-paper
ventures are up and running at International Business Machines Corp. and
Gyricon Media Inc., a Palo Alto, Calif., spinoff from Xerox Corp.
Electronic paper "will change the way information is distributed," says
Mr. O'Brien of Forrester Research.

Analysts also see a future for multipurpose devices such as the Pocket
PC, which can also serve as a datebook and address book. The maker of the
Palm organizers, Palm Inc., for instance, says it sold 180,000 e-book
titles last year, a 40% increase from the previous year. Industry
boosters have particularly high hopes for Microsoft's Tablet PC, a
full-functioning miniature computer due on the market in the second half
of this year. Microsoft expects one-third to half of the ultra-portable
market to move to Tablet PCs by the end of next year. Adobe also offers
free e-book viewing software for Palm Pilot devices, as well as
Microsoft's Pocket PCs.

For his part, Mr. Sorensen, the technophile stuck on his traditional
books, says he can't imagine any digital device that could deliver more
pleasure than the hardcover lying on his bedside table, Ernest
Hemingway's classic, "A Moveable Feast." Indeed, he believes Papa
Hemingway would rise from his grave in anger at the thought of his memoir
served up on an e-book.

"He'd break your knuckles," Mr. Sorensen says.

--Mr. Bandler is a staff reporter in The Wall Street Journal's Boston
bureau.

Write to James Bandler at
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