SAN FRANCISCO (AdAge.com) -- Books are among the last bastions of ad-free content. But they won't be so forever if Amazon has its way.
The online retail giant has been nurturing a growing e-reader market with its Kindle device; analysts estimate more than a million have been sold since its 2007 debut. And the idea of serving ads in e-books has been a subject of chatter for a while. But Amazon appears to have taken the next concrete step in that direction. Recent reports indicate the online retail giant has filed patent applications to stuff digital books with contextual advertising.
Forrester estimates that 13 million U.S. consumers will use some kind of e-reading device by 2013. Meanwhile, Barnes & Noble in March bought e-book seller Fictionwise, and Google is set to sell e-books later this year. Mobile e-reader apps such as Amazon-owned Stanza, with its own 2 million users, are also setting the stage for e-books to mushroom. A Bowker survey in the first quarter found that digital books account for just under 3% of total U.S. book sales, up from 0.4% for all of 2008. Books rang up $24 billion in sales last year, according to Association of American Publishers estimates.
Amazon may be the biggest player in the burgeoning e-book market, but it's not the only one; Sony and upstarts such as the U.K.-based Plastic Logic have entries. Not to be outdone, Apple is rumored to be working on a tablet device.
While the big players figure out how to wrap advertising in and around digital books, a few startups are already merging the two, and industry insiders and watchers overwhelmingly say e-books will inevitably integrate advertising.
"Two years ago, people said the audience would never watch TV on the computer screen," said Brian Altounian, president and CEO of Wowio, a 2-and-a-half-year-old e-book startup. "Hulu is showing that people do. Now the Hulu model for books is here."
Wowio is giving readers several entrees to its catalog of e-books, allowing them to pay for the books, which start at 99 cents per title, or download the free advertiser-sponsored PDF versions.
The company brands books in the public domain -- meaning they are free to anyone -- as "Wowio Classics," differentiating some of them with embedded rich-media extras such as supplementary video or audio clips.
ITaggit, a web property that helps collectors organize and track the value of their collectibles, sponsors 30 Wowio Classics. The first page of a sponsored book reads: "ITaggit is proud to sponsor this e-book for [registered user]" and includes a link to iTaggit's website. There is no additional advertising in the book.
Other Wowio advertisers have included Verizon Wireless, which gave away e-books as thank-you gifts to subscribers who converted to paperless billing.
At DailyLit, which has more than 300,000 subscribers, users can specify the frequency with which they want to receive their online e-book installments, which are free if underwritten by advertisers. Unsponsored e-books start at $4.95.
To build awareness among the core DailyLit audience of affluent women in their 20s and 30s, jeweler H. Stern last year sponsored "This Moment on Earth" by Sen. John Kerry and his wife, Teresa Heinz Kerry. Ronaldo Stern, H. Stern's North American CEO, said the company wanted to expand beyond advertising in beauty titles such as Vogue and Harper's Bazaar.
"It was an experiment. This was a tactical opportunity and a way of doing something creative at a reasonable cost," Mr. Stern said, adding he would consider using e-books again as a promotional vehicle. The upscale jeweler also gave Mr. Kerry's book as part of an e-mail Christmas greeting to customers "to give them a totally different Christmas card, an appreciation token -- we wanted to surprise."
New business models
With print media in turmoil -- or as one publishing executive put it, "The business is undergoing both a revolution and a depression" -- digital players big and small are trying to find new business models with an eye to lowering the cost of books to consumers.
"There's a movement in the industry to offset book prices through various ways," said consultant Chris Andrews, who's writing an e-book about the advent of e-books. "There's more revenue per book with those ads and they allow publishers to sell the book less expensively. It also gives advertisers this cool market of people who spend hours with content. The relationship is longer than any other media -- and it's deeper."
Others view in-book advertising as just one stop along a continuum of possibilities.
"They're just exploring all the multiple ways you can monetize content, so you can offer a customer a full-priced book at $9.99 or you can offer them a half-priced book that's partially underwritten by advertisers," said Mark Coker, founder of e-book seller Smashwords.
Industry insiders and analysts see Amazon's patent filings as a way to fend off Google, which has scanned more than 7 million books via its web-based Google Books service and another 1.5 million for mobile users. For Google, the opportunities to monetize public-domain books with contextual ads wouldn't be a big leap, although its book-search site states: "Advertising will not be overlaid on pages from a book." A Google spokeswoman said she knew of no plans to embed advertising in e-books. Amazon declined to comment on reports of its patent filings.
"It makes sense for Amazon to embed ads in books, because it can offer advertisers super-targeted demographic information about the readers of those books," Mr. Coker said.
'This is all experimental'
The more skeptical say the idea of subsidizing e-books with advertising remains in its infancy and that it's premature to announce the marriage between advertising and e-books as a certainty.
"This is all experimental and not inevitable. We don't know if it's going to work," said Steve Rubel, senior VP-director of insights at Edelman. "It has to be part of the experience and not something that's interruptive. Consumers may not accept any of it."
Ed McCoyd, Association of American Publishers' executive director, said the largest publishers in its memberships are embracing e-books, and new revenue streams, but concerns linger about user experience, and whether the advertising revenue would be too incremental to be meaningful.
Advertisers are looking forward to advertising in e-books as part of a larger opportunity to transform the print medium.
"I see e-books as part of a broader mix of new electronic reading technology which is going to revolutionize the print medium," said Maria Mandel, senior partner and executive director of digital innovation at OgilvyOne. "They offer up the same type of targeting, tracking and optimization that you see in the online world, making it very interesting for advertisers as a new way of intelligently targeting specific demographics or contextually relevant placements."
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