Is Apple Preparing to Challenge Amazon's Book Business?

Apple  (NASDAQ: AAPL  )  looks to be stepping up its battle to win book customers from Amazon  (NASDAQ: AMZN  )  by purchasing Booklamp, a startup trying to deliver better book recommendations for readers.

BookLamp's best-known product, the Book Genome Project, scans the writing style of books a customer likes and suggests novels or authors with a similar feel. It could also break down plot themes and content, allowing for better search and discovery, TechCrunch reported. According to a source from the technology news site, "Apple bought BookLamp to power an ebook search competitor to Amazon."

Apple is currently in the digital books business with its iBooks service. But while Apple sells books, Amazon is books. That said, in an evolving market with hundreds of millions of Apple devices in peoples' hands and credit cards on file, there is no reason it can't catch up.

Why would Apple want Booklamp?
Amazon has spent tens -- if not hundreds -- of millions developing its recommendation engine. Apple has not. Instead of offering tailored choices based on purchasing history, iBooks uses top lists like Apple's App Store, as well as featured selections, author spotlights, and categories. Amazon can tell you with pretty good accuracy what you might like based on what you have already bought. Apple simply can't.

BookLamp has at least some of the technology to even the playing field, which might make iBooks an attractive alternative for Apple device users who already buy music, video, and apps for their iPads and iPhones. Apple has to offer Amazon's Kindle apps on its tablets and phones because devoted readers might buy other devices if it was not offered. If Apple could match what Amazon does -- or at least come closer -- it might follow a similar path to the one it took in dropping Google's maps app in favor of its own -- though that move did not work out very well.

That might outrage some devoted Amazon fans, but it could push people to buy books from Apple and give it a chance at a much bigger piece of the market.

How big is the market?
In the first six months of 2013, Bowker Market Research reported that e-book sales accounted for 14% of consumer spending on books. But e-books accounted for 30% of all books sold during the period. The difference between the growth of e-book unit sales and the growth of the format's share of spending reflects the lower prices of digital books, according to Publisher's Weekly.

Amazon and Apple are both very cagey about their specific sales numbers of digital books. But due to a court case, an Apple executive had to reveal some data in June 2013. While testifying in U.S. vs. Apple, in which the Department of Justice accused Apple of colluding with book publishers to set digital prices, Apple's Keith Moerer said the company had a 20% market share.

At that time, GigaOm reported that 20% was higher than most in the publishing industry would have guessed. "Most estimates had placed Apple's U.S. ebook market share at around 10%, with Amazon's Kindle at 50% to 60% and Barnes & Noble's  (NYSE: BKS  ) Nook at 25%," the site wrote. 

Those numbers are likely different now, as Barnes & Noble's digital sales have plummeted over the last 12 months. But if we assume Apple has around 20% of the market and Amazon has 50%-60%, that leaves a lot of ground for the iPad-maker to potentially gain. 

Though sales growth for digital books has been slowing, PricewaterhouseCoopers estimates that trade e-books -- that's consumer, not educational or academic -- will account for $8.2 billion in sales by 2017. If that is correct, every 10% of digital market share will be worth around $800 million, so you can see the logic of Apple trying to up its game.

Apple and Amazon want the same customers
Both Apple and Amazon have managed to create similarly devoted, trusting customer bases. iPhone and iPad users store their credit cards with Apple without hesitation for use buying apps, songs, and, in some cases, books. Amazon has managed to accomplish the same thing by allowing its users to buy pretty much anything with a click or two. 

While Amazon has 244 million customers with credit cards on file and tens of millions using its Kindle e-readers, Apple has a truly stunning base of customers on its devices. The company sold 150.2 million iPhones in 2013 and 125 million in 2012. It also sold 71.1 million iPads in 2013 and 58.31 million in 2012. That gives the company a large potential audience for iBooks.

The biggest thing that kept Apple from gaining ground on Amazon in book sales is its inferior shopping experience. If the company can integrate the BookLamp technology to offer recommendations that are equal to or better than Amazon's, it should be able to win over customers. If iBooks gets better, it seems possible Apple could stop making Kindle available in the App Store. That would likely anger some Amazon customers who would be separated from their library of already-purchased books, causing them to leave for Kindles or Android devices.

That number would likely be insignificant, however. Most people would be able to move to iBooks easily enough, especially because it would not require a registration, since Apple already has credit card information on file for hundreds of millions of people. If Apple can build a decent digital bookstore, it should be able to take customers from its rival. 


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 29, 2014, at 2:40 PM, etbob1 wrote:

    Amazon's last earnings report is like the Titanic hitting the iceberg. The band plays on because how could the Titanic sink? It's too big to sink!

  • Report this Comment On July 29, 2014, at 3:14 PM, melegross wrote:

    I buy almost all my books through my iPad. I've been doing this since I bought the first iPad back in early 2010. As soon as the Kindle app became available, I was buying books with it. I then began using the Nook app, and more lately, once it became available, iBooks.

    As I've been buying books through the Kindle longest, I have more books bought there, about 260. But iBooks is next with about 230, with the Nook last at a bit over 200.

    Obviously, I'm a big book buyer. Now, I also use Oyster, paying $10 a month for as many books as I can read. But their library doesn't include all the biggest publishers, and when a series is available, not all the later books are there, for some reason.

    But I would be very unhappy if Apple deleted the Kindle and Nook apps. I find that not everything is available everywhere. And I've got authors on one platform, with others on other platforms. I'd hate to have them on more than one, as it's difficult to organize.

  • Report this Comment On July 30, 2014, at 1:20 PM, ebernet wrote:

    What does this mean:

    "If Apple could match what Amazon does -- or at least come closer -- it might follow a similar path to the one it took in dropping Google's maps app in favor of its own -- though that move did not work out very well."

    Yes, Apple dropped the underlying Google Maps engine for their maps engine, but Google Maps is till available in the app store and will continue to be, and Apple even promoted it when it 1st appeared (and continue to give it prominent placement in the App Store).

    On that same note, Apple has continued (and will continue) to offer the Kindle Reader on the iPhone/iPad/Mac (it is in the App stores of all 3) since iBooks came out for iOS 4. iBooks has so far been an optional install from the App Store on iOS devices, but is installed as part of OS X Mavericks (and will also be pre-installed on Yosemite and iOS 8). The Kindle reader was never an underlying engine for Apple's book reader, iBooks. Apple HAD no book reader preinstalled (and will not until iOS 8)

    Apple's maps has evolved quite a lot, and while there were certainly issues with its rollout (as there always is with such an ambitious launch - I think people are just so used to Apple getting things perfect right out of the gate), this comment reeks of an underhanded insult and a not well fought out statement.

    So what path would they follow? What were you trying to say other than give an underhanded insult to Maps?

  • Report this Comment On July 30, 2014, at 1:21 PM, ebernet wrote:

    till should be still. Fought should be thought. Sorry for the typos.

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