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Measuring the iBook market

In June of 2011 Apple announced that 130 million ebooks were sold through iTunes. In October of 2012 it announced that 400 million sold.

That means 270 million ebooks were sold in 16 months. Or about 17 million units per month, on average. It also suggests 2012 ebook sales of about 200 million units.[1] The following graph shows the download rate of books relative to apps and songs:

Screen Shot 2013-02-28 at 2-28-3.09.25 PM

The download rate looks paltry but we need to remember that Apps have a very low average selling price (about 23 cents including in-app purchases) and that Songs are probably priced around $1.1 on average. In contrast each ebook could be generating about $10 per download.

However that may be a bit high. We don’t know the mix of lower priced and higher priced books. Many best sellers are $13 or $14 but there might be some free books in the mix as well.

If I choose a more conservative $9 average selling price and assuming a 70% share for the publisher then Apple’s iBooks generated about $1.3 billion in payments and grossed about $1.8 billion.

In the past few posts I measured the iTunes App ecosystem and the Music economy. With the iBook market now measured we can derive the size of the only remaining media type: video.

Screen Shot 2013-02-28 at 2-28-3.17.57 PM

Notes:

  1. I’ve seen one estimate that world-wide ebook unit sales reached 860 million implying Apple’s share was about 24%.
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  • FreeSites

    I believe that ebook sales across the web and at Amazon are 2/3 to 70% indicating that your “conservative $9 average selling price” is too high for iBook

    • ptmmac

      I personally spend more on iBooks. I don’t spend $10 all the time. I look for $3 to 10$ per book. If I really want it now, I will pay top dollar, but I have a Kindle App too. It has more books, but it is less smooth to work with.

  • FreeSites

    I believe that ebook sales across the web and at Amazon are 2/3 to 70% FREE
    indicating that your “conservative $9 average selling price” is too high
    for iBook

    • http://twitter.com/asymco Horace Dediu

      Do you have a source for this estimate? The estimate I looked at is Price Waterhouse Coopers which estimates 2012 revenues from ebooks to have been about $6.2 billion (http://paidcontent.org/2012/06/12/what-will-the-global-e-book-market-look-like-by-2016/). Using the second estimate of 860 million units yields a global average of $7.2 per unit sold. I’m assuming a premium for iOS users given the data presented here http://www.huffingtonpost.com/2012/10/17/cheapest-ebooks-amazon-ibooks-google-barnes-noble_n_1952736.html

    • http://twitter.com/kgbraund Kyle Braund

      FWIW, I read (on average) a book a week, and typically pay $12-13 each time.

      • neutrino23

        I don’t read that many books but I agree with the price. Most of the books I buy are closer to $20 than to $10.

        David Sparks in a talk at Macworld this year said that his experience is that prices for iBooks are really hard to decide on. He’s raised prices on his books and seen no change in volume(granted that these are noisy numbers). He’s also seen that his book is available for free on some pirate sites yet he still has good sales on iTunes.

      • John

        I bought the David Sparks “Paperless” book from iTunes/iBooks for $5. He updated it, told previous buyers to delete their current version and re-download from iTunes to get the updated version for free.

        In contrast, in 2010, I bought a Real Estate Finance textbook from Amazon for $67. The version they sold me, the only Kindle version available, was the 13th edition from 2006 or 2007, while the 14th edition from 2009 was available in print but out of stock.

        You can imagine the difference in a Real Estate Finance textbook pre and post 2008.

        Amazon refused to refund my money ( a rarity for them ) but I swore off Amazon ebooks forever.

        Just one guy’s experience.

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  • stevesup

    I wonder if ebook prices can peg at ten bucks, as Horace notes, when the other forms of consumer digital media—apps, tunes, and games—are falling to about a buck. A buck is about all we expect to by for electrons, for titles we don’t actually own, cannot lend, cannot resell. Shows will also end up around a buck eventually; their price is held up due to the expense and complexity of production currently. But ebooks, like games, tunes, and apps, are a cottage industry. What will prop the price?

    • http://twitter.com/WalterMilliken Walter Milliken

      My wife is a self-published author, and what she’s been hearing around is that the good self-published titles are actually stabilizing at a higher price in the $4-5 range — people price books at $0.99 to try to get them to sell to build up recognition, and there’s too much junk at that price point now, so that trick no longer works. Readers apparently now see a $0.99 price point as an indicator of “written in crayon”, unless they have reason to believe otherwise.

      There is also upward pressure on ebook prices due to Amazon’s royalty policy, which drops royalty amounts drastically below $2.99.

      To some degree, I think the price point buyers are comfortable with reflects their level of investment in time with the item. For a song, the amount of time it consumes is short, and therefore a lower price is more palatable. For a book or a movie, the amount of time you spend on it is much larger, and you may be more willing to investigate the item before purchase, as well as being comfortable with a higher price since you’ll be entertained for a longer time.

      Games seem to follow this pattern too — games with a larger time investment can justify a higher price, though I think this is now reflected more in the freemium business model than in an up-front price.

      In other words, I think it’s a matter of “you pay for what you get” in the buyer’s minds. It’s not entirely a race to the bottom.

      • stevesup

        Interesting. I can certainly understand Amazon’s wish to keep prices up; it’s been promising a pay out to Wall Street for its subsidized tablets for years. Why did Apple side with publishers on pricing? In fact, it’s the last one standing in that fight. Apple established the one buck tune and the one buck app. So why would Apple care about book pricing if it makes its revenue off hardware?

      • http://twitter.com/WalterMilliken Walter Milliken

        I don’t think Apple cares as long as there’s content available for its devices at a reasonable price. Unlike what they do in music, though, Apple isn’t dictating what is “reasonable” (unlike Amazon) for ebooks. I don’t think Apple sees ebooks as a big driver to device sales, anyway, and Horace’s chart shows why.

      • stevesup

        Having lost the legal battle to allow publishers to price their books, maybe Apple ought to take a page out of Amazon’s … book, and simply price its ebooks at a buck. Throw a dime on the price of the iOS devices if necessary. That would get Bezos’s attention.

      • http://twitter.com/WalterMilliken Walter Milliken

        Actually Apple’s agency model is still active (and it is at Amazon as well for independent authors). All the court case did was force the publishers to let Amazon go back to the wholesale model with them. The main thing Apple really lost was their “most favored nation” clause, which lets Amazon undercut them.

        And if Apple went to $0.99 pricing on all books, unless they were paying the usual wholesale price, I think they’d lose all the content. for indie authors, at least, they probably wouldn’t make enough at that price to be worthwhile. Other than bestsellers, most hardcopy books only sell a few thousand copies, and most indie books sell a lot less than that. And I don’t think they would make it up in volume, either — I don’t think readers are that price sensitive.

      • stevesup

        When I said Apple should use Amazon’s strategy, I did mean it should pay the wholesale price as does Amazon. For bestsellers and such anyway. Indies would be a buck, for sure. A lot of them are now; I don’t see how that would matter. As with its devices, Apple can offer the best to the rest. And wreck Amazon’s promises of sweet nothings to Wall Street.

      • jawbroken

        I don’t think your theory about time investment pans out. People listen to songs multiple times, books and movies are generally consumed once or twice. People spend a lot of time with apps and they’re priced lowest of all.

      • http://twitter.com/WalterMilliken Walter Milliken

        The app market does seem to be somewhat different, but there are signs even there that some apps will still sell well at higher prices, if the buyer perceives value there. I think a lot of the apps people spend significant time with are either “free” information apps that are advertising-subsidized, or games.

        As far as songs go, you’d have to listen to a song fifty to a hundred times or so to spend comparable time on it that you would with a movie or book. And if you listen to it that much, you’re probably using it as background, not as primary entertainment. It has value, but it’s not your focus. So the value case is different from a book or movie.

        I do agree that people value information goods at a lower price than physical ones — look at what people pay for transient pleasures like premium coffee or eating out in a restaurant, for example.

      • jawbroken

        Movies are more expensive than books but books generally take longer to read. The price of an app doesn’t seem related to how long people spend in it, to me. I’m still very unconvinced there’s a strong relationship here.

  • Chaka10

    Horace, I know that the question/issue was raised in an earlier comment/answer regarding whether music/video/books revenues are recognized by AAPL on a gross or net (i.e, ex payment to the publisher/label). I would ask again, specifically on iBooks, given the “agency model” of that business (if I understand correctly, your analysis seems to suggest iBook revs are recognized on a gross basis, i.e., payments to book publishers are included in the reported iTunes revenues ($13.5 bb for 2012)).

    • http://twitter.com/asymco Horace Dediu

      Yes, you’re right. I need to re-do this with the assumption (which I believe to be most valid) that ebooks are accounted for on an agency basis.

      • Chaka10

        Thanks. I think the analysis you’re doing is very important, and in my view ties to some themes that AAPL management has been trying to get through to investors (and failing from what I can tell from the continuing chirping for AAPL to sell cheap phones to gain unit market share in EMs).

        The key is the sticky Apple ecosystem and, as TC said yesterday, where market share is important is only in being big enough to attract an ecosystem. AAPL’s “promised land” is where the iOS (and broader Apple) ecosystem captures and keeps the most valuable part of the mobile user base (those with money and spend the most — ref the IBM data for 2012 holiday eCommerce sales showing iOS dominance). I have not seen any firm analysis (would be interested), but it makes intuitive sense that AAPL is capturing the most affluent consumer classes in China and other EMs.

        Your analysis begins to illustrate, and AAPL’s reorg of its iTunes product segment reporting (in my view) is an effort by management to highlight, the promise and opportunity for AAPL to drive value (and profits) through that ecosystem.

        I don’t think Apple has (or should have) any interest in gaining unit share among the segment that barely uses “smartphones” for much more than voice-calls, text messages, checking weather and some limited browsing. I don’t think Apple intended to become a “phone vendor” in the same way as a Samsung, targeting all segments with a broad array of models. That business is not much different than the historical feature phone market, i.e., is hit driven and littered with casualties (Ericsson, Motorola, Nokia, …).

    • http://twitter.com/asymco Horace Dediu

      I revised the estimates and tweeted the results: https://twitter.com/asymco/status/307174574334828544

      • Chaka10

        Thanks. The revised estimates would show the iBooks business to be about 30% (not ~50%) of the books and videos part of the iTunes business, which I interesting (I think ultimately e-Books will be a lower margin business so long as AMZN is selling on loss leader basis, and as mentioned before, there’s the DOJ uncertainty…).

        Btw, these revised estimates would also increase your prior estimate of $15.6 bb gross iTunes revenues (for the entire iTunes ecosystem), right?

      • http://twitter.com/asymco Horace Dediu

        Yes, I’ll post another “iTunes economy” view. It could be $17.5 billion in 2012. I’m concerned about the sensitivity to the ebook ASP. It affects the deduction of video revenues which affects the analysis of Apple TV.

      • Chaka10

        Suggest you give a range (unless that becomes too clunky to illustrate).

      • Chaka10

        It would take some work, but I’d think there’s a bunch of good market data in the DOJ anti-trust case (on eBook prices, market shares, etc).

      • Chaka10

        I did some more reading on the DOJ case (looking at the actual briefs, settlements and court opinions). Here’s a link to the filings: http://dockets.justia.com/docket/new-york/nysdce/1:2012cv02826/394628/

        All of the book publishers have settled with the government. The settlement required them to terminate their agency agreements with AAPL. It’s been reported that they’ve resigned with AAPL, presumably on a wholesaler basis. So in sum: (a) the good news, I believe, is that the impact on AAPL’s iBook business model from the DOJ action should largely have started flowing through in 2H 2012 (the last two settlements were in Dec and Jan) and (b) the complication for Horace’s analysis is that, for the same reason, it is not so clear that AAPL’s iBooks business should be analyzed on an agency basis, at least for 2012.

  • http://twitter.com/WalterMilliken Walter Milliken

    I’d be a little surprised if Apple’s ebook share was as high as 24%. The only hard data I have is from my wife’s self-published ebook sales, which have seen well over 90% of their sales at Amazon US, and less than 1% at Apple. Her sales through the Smashwords site are substantially higher than Apple’s, surprisingly. This probably is influenced by discoverability issues — Amazon is very good at linking books in via “Also bought”, which seems to be the primary driver of her sales.

    The ratios are probably different for bestseller titles, though, where people know what they’re looking for and simply buy from the most convenient (or cheapest) source.

    Data on ebook market share is hard to find, but I did dig up a nice pie chart at:

    http://www.karenbaney.com/tags/ebook-market-share/

    which uses data from a detailed Bowker ebook market analysis survey from about a year ago (Flickr link to slides at http://www.flickr.com/photos/59991790@N02/sets/72157629630447801/), which shows Apple as having roughly a 10% overall market share, which is closer to the number I’d have guessed. The only authority for Apple having a 20+% figure I’ve seen is from a presentation by Apple after the iPad launch, where they claimed a 22% share, but that could easily have been a transient from the launch.

    • http://twitter.com/WalterMilliken Walter Milliken

      And when I looked at the chart again, it also shows an “iTunes” category (at 14%) alongside “iBooks”. My wife speculates that this covers books sold as apps rather than via the iBookstore. If so, it’s interesting that there are more sales via apps than via the bookstore, especially given that Apple discourages authors from publishing via apps now. I also wonder how much of the iTunes part is things like the comiXology comic distribution app platform, and whether we should be counting that as part of the “ebook market” or not….

    • neutrino23

      There are some books available only on iTunes such as those made with iBooks Author. Also, David Sparks in a talk at Macworld pointed out that Amazon charges authors a download fee of $0.15 a MB (by my memory). His book is 800MB with included videos and pictures so he couldn’t possibly sell it on Amazon. The download fee would be $120 a copy. Maybe Apple has much more of the market for media rich books such as technical books and textbooks and Amazon skews towards short, text only ebooks?

      • http://twitter.com/WalterMilliken Walter Milliken

        The Amazon download fee applies only to the 70% royalty tier (price $2.99 and sold only in certain major markets), if I recall correctly. Interestingly, I believe the download fee was originally part of Amazon recouping the 3G bandwidth costs for the original Kindle (and probably keeping people from selling “fat” ebooks and breaking their bandwidth estimates)

      • neutrino23

        I tried searching on this topic and got a few hits. It does seem that Amazon charges $0.15 per MB download fee to the author whether it is download by WiFi or Whispernet. This certainly discourages people from publishing media rich books with Amazon.

  • oases

    Why does the pie chart have such different proportions to the line graph? Is the music industry getting a better deal than the software industry? Shouldn’t app developers be getting a lot more of the pie than the music industry? Is music perceived as being of higher value than software or of being harder to do well?

    • jawbroken

      ASP is very different between apps, music, video and books.

      • oases

        Why are apps cheaper than songs?

      • http://twitter.com/asymco Horace Dediu

        App prices are set by the developer. I guess you’ll have to ask them.

      • http://twitter.com/agencybird Gemma

        Why are oases asking questions dumb questions?

    • http://twitter.com/asymco Horace Dediu

      The difference is explained in the post as caused by the different prices per download. A book download can be worth 50x an app download.

  • http://twitter.com/thDigitalReader Nate the great

    There’s a huge flaw in the figures. Apple has always indicated that they had millions of downloads, not sales. That’s not the same thing. The download figure includes all the free titles as well as paid, with a ratio of 15:1 or higher.

    http://ebookne.ws/Z2Ymvc

    • jawbroken

      “The download figure includes all the free titles as well as paid, with a ratio of 15:1 or higher.”

      I don’t see how you made this estimate or how the 100:1 ratio in the article you linked is supported either. Why should I believe you any more than the article you’re commenting on?

    • http://twitter.com/asymco Horace Dediu

      In response to a previous comment: Link

      “The estimate I looked at is Price Waterhouse Coopers which estimates 2012 revenues from ebooks to have been about $6.2 billion (http://paidcontent.org/2012/06…. Using the second estimate of 860 million units yields a global average of $7.2 per unit sold. I’m assuming a premium for iOS users given the data presented herehttp://www.huffingtonpost.com/…

      I’ve tested the results using an average sales price to $7.2/download and it yields $1.03 billion paid to publishers and revenues of $441 million as agency fees for Apple.

      • moo

        Firstly, you keep using the word sold for units downloaded in the story when the figure is downloads. Even if it’s a majority of sales vs free books, this is clearly misleading.

        Then you compare it to an average selling price based on an estimate by Devitt, which is not exactly well reported but seems to be quoted as units sold; why do you believe this includes free ebook downloads?

        In addition to the issue of whether free ebooks are counted, your average selling price seems far too optimistic too. Devitt estimates that of that 859 million books, Amazon sold 383 million units. Using your estimate of $7.2 per book, that’s $2.6 billion in revenue. However according to this chart from the same analyst, http://www.businessinsider.com/chart-of-the-day-how-much-money-amazon-is-making-from-the-kindle-2013-2 he estimates agency and principal ebook sales generating about $1 billion in 2013

        At best your numbers are vastly more uncertain than your piece suggests.

      • http://www.asymco.com Horace Dediu

        The chart linked shows operating profit not sales.

    • http://www.noisetech-software.com/Home.html Steven Noyes

      I don’t see where you go give any indication of the paid VS free download ratio on the Apple Book Store. We ready know using Amazon’s Android app revenues compared to Apples’s app revenues would create bogus results so why soupy think books purchasing behaviour would all of a sudden be similar?

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  • MacHouse

    Perhaps this is slightly off topic however I’m compelled to inquire of the intelligent folks that are regulars here!

    Outside of certain technical books and classic works our household has little interest in owning books. Largely then books = entertainment = movies. Assuming we’re typical, why wouldn’t isn’t a book rental option available in the ebook marketplace?

    We’d be happy to pay a couple bucks to rent a book for say 14 or 30 days to avoid the expense of a trek to the library or waiting in the electronic queue for an ebook checkout from our Library in Overdrive.

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  • http://twitter.com/pintobooks Jorge Pinto Books

    As a book publisher both in print and eBooks in Nook, iPad and Kindle, I think from the quality of the books in iBooks format has not comparison with what you get in Kindle, where any well formatted text file is badly formatted. Amazon don’t have any control of any nature.Also its eMail customer service is inexistent with irrelevant or useless replies. Now with now 50 iTunes stores around the world sales of my books are surpassing Kindle and always have immediate access in office hours to well trained consultant.

    • Mac

      What about sales and profit?

  • spblackstock

    I’d love to see that data plotted on a log scale. It would make the iBooks data more useful. Also, it looks like the Apps data might fit an exponential better than a straight line.

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