While the feature-packed Apple Inc. (AAPL) iPad and other tablets grab headlines, Kobo Chief Executive Officer Michael Serbinis remains enamored with the simple e- reader.
Serbinis, head of the digital reading company owned by Tokyo-based Rakuten Inc. (4755), likes them so much because their owners buy five times as many e-books as tablet users, he says. That’s why Kobo is releasing two new dedicated e-readers, one with a built-in light and another with a 5-inch screen that he says is the smallest in the world.
“We’re making a bet on e-readers, absolutely,” Serbinis said in an interview. “The demand for the dedicated e-reader is growing.”
The new devices, which also include a media tablet, are part of a push back into the U.S. market. Kobo’s devices had been featured in Borders Group Inc.’s stores, a relationship that ended last year when the second-largest bookstore chain liquidated.
That left Kobo, which started as a subsidiary of Canadian book chain Indigo Books & Music Inc. (IDG), with little presence in the U.S., the world’s largest market for e-books. The Toronto- based unit, bought by Rakuten last year for $315 million, has since expanded into Europe and Asia and now is seeking to re- establish itself in the U.S., where it gets less than 10 percent of its revenue.
Kobo has a lot of ground to make up against its main competitors, which spend heavily on advertising. Amazon.com Inc. (AMZN) has 60 percent of the U.S. e-book market, followed by Barnes & Noble Inc. (BKS) at 25 percent and Apple at 10 percent, according to estimates from James McQuivey an analyst at Forrester Research Inc. (FORR) in Cambridge, Massachusetts. Kobo has less than 5 percent, he said.
Besides selling the new devices through retailers such as Best Buy Co., Serbinis is betting on a partnership with the American Booksellers Association, a trade group that represents about 2,000 independent stores.
The deal allows the bookstores to sell Kobo’s devices and accessories while sharing revenue generated from the digital books sold on those e-readers. The plan replicates its strategy in other countries, where it has partnered with about 11,000 bookstores, he said. Kobo expects 400 stores to begin offering its wares this year.
“Where we have booksellers as our partners, we can not only build our brand, but also drive significant share gains,” Serbinis said. It’s also a cheaper way to gain people who read and buy the most books, instead of trying to stand out against deep-pocketed competitors at a consumer-electronics retailer, he said.
Kobo’s renewed focus on dedicated e-readers comes as worldwide shipments are expected to decline 15 percent to 23.6 million this year, according to Framingham, Massachusetts-based researcher IDC. Sales are then expected to increase thanks to overseas growth before peaking at 35.5 million units in 2015.
That deterioration is being driven by a drop in the U.S. that started this year and is expected to continue as cheaper media tablets lure more consumers, said Tom Mainelli, a research director at IDC. Shipments of tablets are expected to gain 65 percent to 117 million units this year, IDC said.
Serbinis is betting that even with all the advancements in tablets, the glowing liquid-crystal display is still harder on the eyes than e-readers. E-readers use e-ink, which has a dark background and mimics printed material better. An e-reader’s battery can also last for a month compared to less than half a day for many tablets, he said.
Lower prices, or even devices being subsidized to the point of becoming free to a consumer, will keep the e-reader alive as a niche product for many more years, said Hugues De La Vergne, an analyst for researcher Gartner Inc. based in Dallas.
The 5-inch Kobo Mini that weighs 4.7 ounces, 28 percent lighter than the Kobo Touch, will cost $79.99. The Touch was priced at $99.99, or $79.99 for a version with advertising. Barnes & Noble’s cheapest Nook sells for $99 and Amazon offers a Kindle with ads for $79. The Kobo Glo, which has a light, will sell for $129.99 compared with $139 for Barnes & Noble’s Nook Simple Touch with GlowLight.
“These devices will have to be cheap enough that people won’t think about acquiring them,” De La Vergne said in an interview. “If they can save money downloading books online versus the printed media, then the device’s cost can justify itself in a pretty short time for avid readers.”
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