Rakuten, a major online retailer in Japan, is to acquire 100 per cent of outstanding stock in Kobo, the Canadian ereader device maker and ebook store operator, in a $315m all cash transaction. Kobo was founded in 2009 by Canadian entertainment retailer Indigo Books & Music, who then have spun off the company retaining a 51 per cent stake. US book retailer Borders, which went into administration earlier this year, owned an 11 per cent stake. The transaction is expected to close in early 2012, following necessary regulatory approvals.
Kobo's recently updated slate of devices includes two dedicated ereaders with e-ink displays and a tablet Kobo Vox, which runs on the Android platform. Kobo ebook store offers a catalogue of 2.3m titles (including out of copyright books) and is available in 200 territories, with localised versions already launched for UK, France and Germany and in the works for Spain, Italy and the Netherlands.
Analysis
The ebook and ereader markets are currently very reminiscent of the early days music and personal media player (PMP) markets. Although Sony was active on the ereader market since 2008, the ereader and the ebook markets only properly took off with the emergence of the Kindle device plus store ecosystem in the same way as the iPod-iTunes ecosystem has kick-started the online music and PMP markets.
The competing DRM-systems and file formats are also evocative of the pre-2008 music space. While EPUB has emerged as de-facto standard for ebook ingestion, there is no standard consumer-facing wrapper format. Amazon distributes books in its own proprietary DRM-restricted AZW format, Apple iBook store distributes books wrapped in FairPlay DRM, while Kobo, Barnes & Noble and Google use Adobe DRM. To draw a parallel with music, Adobe DRM occupies a position similar to that of Windows Media DRM in the era of DRM-wrapped WMA format as a standard for all online music retail that was not Apple (who at the time used FairPlay DRM for the music they distributed in AAC format). Just like Windows Media DRM was supported by a multitude of generic personal media players, Adobe DRM for EPUB is supported on more than 140 dedicated ereader devices, but not by market leading ereader brand Kindle. Incidentally, in both cases DRM, which in theory restricts consumers to a single device-service ecosystem, is not an obstacle for adoption. Just like the incompatibility of music purchased from iTunes before 2007 with any PMP other than iPod did not hinder Apple prevailing on a number of music markets worldwide, Amazon's proprietary AWZ has no implications for the retailers ascent in the ebook space.
While the reach of the Kobo device-store ecosystem (which also includes apps for third party devices - PCs, smartphones, tablets) has topped 3m users earlier this year, its subsequent alliances with major entertainment and book retailers (the company has made deals with FNAC in France and WH Smith in the UK in October 2011) are likely to prove a key differentiating factor for the company in the face of competition from Amazon and Apple. The retail muscle of Rakuten in Asia-Pacific and other emerging markets (Rakuten has presence in Brazil) make for an interesting potential of early market share grab in those territories; however, the region-specific challenges (e.g. the well-established mobile phone ebook market in Japan) are not to be underestimated.
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