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Strategic insights
Digital Outperforming Traditional at a Rapid Pace

Written by on July 22, 2010

There where two interesting stories this week about emerging digital markets. First, we heard from Amazon that the sale of ebooks has now surpassed the sale of hardcover books.

According to The New York Times:

Amazon said, it sold 143 Kindle books for every 100 hardcover books, including hardcovers for which there is no Kindle edition.

The pace of change is quickening, too, Amazon said. In the last four weeks sales rose to 180 digital books for every 100 hardcover copies.

The shift at Amazon is "astonishing when you consider that we've been selling hardcover books for 15 years, and Kindle books for 33 months," the chief executive, Jeffrey P. Bezos, said in a statement.

That's from zero, to market domination in less than 3 years! The printed book has just lost.

Update: Amazon does not specify how paperback sales compare with e-book sales, but paperback sales are thought to still outnumber e-books.

NPD Group also recently came out with a report that digital PC games sales are now close to matching retail sales - and that study was based on 2009 data.

In 2009, 21.3 million PC games were downloaded to computers in the U.S. via online game services such as Valve's Steam, compared with 23.5 million purchased at stores.

And it will surpass retail sales here in 2010.

The trend here is obvious to anyone. People do not want to go to a physical store, if they don't have to. The demand is so high for digital distribution that even with the very limited digital distribution models that exist today, people favor digital.

The digital distribution marked today is actually not that good. We have awful implementations of DRM that locks people to specific devices or outlets. We have artificial delays; we have a lack of usable systems. It is really hard to watch online video on your TV, many books aren't even available as an ebook, many products have geo-targeted restrictions, same with on-demand games, same with TV and movies.

But just think about it. Even with all these restrictions, digital is bigger then physical. The demand is so huge, that we buy everything we can.

Imagine how much the TV, movie, book, magazine, news, and gaming industries could sell if they made *all* their content available for digital consumption.

On the XBOX you have "Game on Demand," but there is an artificial delay, of more than 6 months before titles start to appear. Most never appears. They delay the release of XBOX games to prevent the destruction of their retail markets.

Looking at the trend, this is clearly the wrong strategy.

Business executives needs to understand that they are not selling distribution channels - they are selling products. Sales will not drop if give people what they want, where they want it?

People want digital, so give them digital.

If you make games, make them available for direct download via Steam or XBOX Games on Demand, from day one!

If you make books, make ebooks, and make sure they can buy where ever they want. Don't force people to wait, or use a specific device/platform.

If you make movies, don't add a 28 day delay before people can watch them on Netflix. Give them what they want, where they want it.

Blockbuster is going down, even when the movie studios try to help them (which they blatantly used in their latest ad). They only thing the movie studios accomplish with this is to remind people that they are not listening and they not providing.

People don't want Blockbuster; they want Netflix. This ad just makes it worse. Blockbuster probably thinks it's good for them. But in reality, all it does it to distract them from changing their business model to meet the new digital demand.

Update: The following was removed because it didn't take paperbacks into account, and was thus factually misleading. Sorry about that! The trend however isn't misleading.

There is another thing that comes to mind if you are a book publisher. When only 35% of the sale is via print, and the trend clearly favors a massive shift towards ebooks, why do you even still print books?

You need to start asking why do you still print books? Obviously, there as lot factors that comes into play. If I where J. K. Rowling, I would still make the Harry Potter books available for print. But for many other authors, it would financially probably be a lot better to simply force people to buy the ebook.

Help people change instead of giving them excuses to stay behind.

You couldn't do this 3 years ago, because back then ebooks meant having to read on your PC. But, we have solved that problem.

Same for games. If you create games for the XBOX, there is no reason to keep manufacturing DVDs, same with the PC/Mac via Steam.

Instead of focusing your entire marketing campaign on "Go to the store and buy this now!" - simply say "Get Steam, and play now!"

It's a much more effective strategy. It's a more direct path to the sale. People can share it, link to it and post it on Facebook... + your cost of manufacturing and shipping just dropped to zero!

We are past the point where it is a discussion about a future trend. It's here, now!

Read also: What you should plan, do, and support.

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Thomas Baekdal

Thomas Baekdal

Founder of Baekdal, author, writer, strategic consultant, and new media advocate.

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