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A New Chapter for E-Books

After falling flat in the early 1990s, are digital books ready to fly? Entrepreneurs are betting that new technology is creating a legitimate market.
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Entrepreneurs are rediscovering the digital book. This time their start-ups might fly

Ahem. A reading from Stephen King's The Girl Who Loved Tom Gordon: "The water was not quite up to her knees. The stuff her feet were sinking into felt like cold, lumpy jelly. ..."

Contemplate the absurdity of reading a chunky Stephen King novel -- or anything longer than a stock quote, really -- on a tiny handheld-computer screen. Reading a book is a visceral experience impossible to duplicate in liquid crystal display. In the early 1990s, companies like Voyager and Vertigo Development Group sold books on disk, but their products failed to catch on. Many readers' computers didn't have the CD-ROM drives necessary to "play" books on their screens. Besides, "you don't curl up with your computer," says Patrick Breen, former senior architect at Vertigo. And publishers were still typesetting manuscripts, making it a huge hassle to digitize a book.

But now it looks as if E-books, despite the absurdity factor, might take off. The Internet's distribution power, together with higher-resolution screens and powerful processors, have made the world a much friendlier place for electronic books than it was just five years ago. And publishers now create books on computers, so the files are already in digital form -- "a complete revolution, and it happened between 1993 and 1996," says Paul Hilts, technology editor for Publishers Weekly.

Last fall, several E-book companies joined forces with Microsoft and, with the blessings of publishers like Simon & Schuster and Bertelsmann, defined a technical standard for publishers' electronic files so that books can be read from desktop computers, dedicated reading devices (portable gizmos used solely for reading books), and handheld computers. That flexibility should help develop consumer confidence and thus a market, says Kevin Hause, a consumer-products analyst for IDC, in Mountain View, Calif. Hause projects that by 2004, electronic books and periodicals will be a $2.5-billion market -- hardly pennies, but still just a fraction of today's $25-billion market for good old-fashioned books.

Pricing for reading devices has been a hurdle, but the costs are starting to drop. Last November the price of the Rocket eBook, a reading device from NuvoMedia, also in Mountain View, dropped to $199 from $499 a year earlier. Another company, SoftBook Press, in Menlo Park, Calif., has also brought reading devices to market. (In January, Gemstar International Group Ltd., in Pasadena, Calif., acquired NuvoMedia and SoftBook. Gemstar markets the VCR-programming system VCR Plus+. The E-book companies will remain separate entities.)

Another E-book contender, Librius.com, in Bellevue, Wash., abandoned plans for its reading device last summer to focus on software after president Don Ledford realized that handhelds were going to swamp his Millennium Reader. "Everyone who's in this business is in it for the content," Ledford says. "Why struggle upstream to try and sell 20,000 units at cost so you can try and sell some books, when 10 to 20 million new handhelds are flowing in?"

That's where Peanutpress.com comes in. The Maynard, Mass., start-up offers free software, called Peanut Reader, for reading books on Palm OS or Windows CE handheld devices. Peanut Readers let readers flip through, dog-ear, and write all over books.

To soothe publishers worried about readers "sharing" books without paying for them, E-book producers are developing encryptions and passwords that safeguard content. Such measures have convinced major publishers -- like Random House and Simon & Schuster, which signed deals with Peanut -- to join the smaller publishers that jumped in earlier.

Peanut president Jeff Strobel, who cofounded the company in April 1998, says that by the end of last year, some 10,000 people had bought the company's books, which cost the same as or less than a paperback. Strobel says revenues, currently in the six figures, increased sevenfold during 1999.

Lending further legitimacy to the E-book market, Microsoft plans to release new reading software this year. Still, it remains to be seen whether readers will become as fond of E-books as they are of, say, that battered, beloved paperback copy of The Catcher in the Rye. After all, it's probably not wise to read your E-book in the bathtub.


Search: "Red + Bumps"

Got a weird rash? MotherNature.com has created what it believes is a compelling reason to eschew the mall pharmacy for E-commerce: online you don't have to query a stranger behind a counter about rash remedies. Instead, Web surfers can find answers for themselves in online books from $500-million health-and-fitness publisher Rodale Inc. -- all without leaving MotherNature.com.

Jeffrey Steinberg, the online vitamin vendor's chief marketing officer, believes that good content, such as that offered by health books from the Emmaus, Pa., publisher of Prevention magazine, will increase the site's "conversion" rate -- in other words, more visitors will become spenders. So last summer the Concord, Mass., start-up gave Rodale 8% equity in exchange for the rights to 150 Rodale books for the next 10 years, as well as direct-marketing access to the publisher's database of 25 million magazine and book buyers.

MotherNature.com programmers converted the books to digital form and cross-referenced them with the site's products. When customers search for rash treatments in one of the books, for example, products containing calendula appear for sale in a frame to the left of the book text.

Although he has no conversion data, Steinberg says the content gives MotherNature.com an edge over its competitors, which include VitaminShoppe.com and drugstore.com. Rodale also provides content to Women.com and Petsmart.com.


This Way to My Library

Imagine your own private library, only instead of having to build bookshelves and buy overstuffed leather chairs, you only need to log on to the Internet. That's precisely the service Versaware Inc. hopes to provide. At the company's eBookCity.com Web site, visitors build personal collections that include a free dictionary, thesaurus, and encyclopedia plus many other free titles and competitively priced newer books. The books reside on Versaware servers, so the library doesn't clutter a user's hard drive, though downloading is an option at no extra cost.

So far, the company -- which employs some 400 people in India, Israel, and the United States -- has added the E to more than 2,000 books. But these aren't just any old texts. "There's a misperception that merely digitizing content is adequate," says Harry Fox, who cofounded the New York City -based company in 1997. "People are not going to prefer reading on a screen." So Versaware jazzes up the content with sound, video, and a collection of 350,000 photos. Customers organize their books by category on separate shelves and can perform targeted searches on them. Someone interested in, say, the spawning habits of salmon can search for the fish on the science shelf and leave out the cookbooks.

Once a book has been digitized, Fox says, Versaware can make money from it more than once by posting it on other sites. Case in point: Lycos hosts Versaware reference materials, like Funk & Wagnall's multimedia encyclopedia, on the Lycos Research Center Web page. Lycos and Versaware share advertising revenues from the page. Lycos director of business development Tom Murphy says that surfers using the reference materials stick to the Lycos research pages 50% longer than they did before Lycos posted the Versaware content.

Versaware, which in its third round of funding garnered $30 million, faces a significant competitor in NetLibrary Inc. The Boulder, Colo., start-up caters primarily to the higher-education and research market and has received $100 million in venture capital from investors that include Houghton Mifflin and McGraw-Hill. To date, Versaware has multimillion-dollar revenues but no profits. It makes most of its money converting textbooks into CDs for publishing companies, including McGraw-Hill.

Jill Hecht Maxwell is a reporter at Inc. Technology.


E-BOOK WHO'S WHO AND WHAT THEY DO

These companies make dedicated reading devices or sell E-books on the Web

Last updated: Mar 1, 2000




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