February 19, 2016
Michael Tamblyn finds himself in an
unenviable position. He has a great job – he’s the new CEO of Rakuten
Kobo Inc. – but the easy days of e-book sales seem to be over, and
industry estimates suggest 2015 was a flat year for e-book purchases in
North America.
That said, Kobo has 26
million users and a library of 4.7 million e-books and magazines in 190
countries, and it appears to be making strides. “January was Kobo’s best
e-book sales month ever,” says Tamblyn, who estimates e-books make up
18 per cent of Canadian book purchasing. Kobo’s most dedicated customers
buy an average of one e-book a month and 16 print books a year. And
while industry-wide numbers can be tough to precisely pin down, Kobo is
regarded as the No. 3 retailer in e-books worldwide, behind Amazon and
Apple.
On Feb. 12, though, Rakuten, Kobo’s
Tokyo-based parent company, announced a goodwill writedown that wiped
out close to $95-million of the Canadian division’s value, thanks to
missed financial targets.
Tamblyn
“represents a company that’s clearly an underdog,” says Thad McIlroy, a
publishing analyst and author of the Future of Publishing blog. “They
have managed to innovate in the quality of the hardware, and are only a
step or two behind Amazon.”
Kobo, once
one of Canada’s hottest tech startups, became the country’s champion in
the e-reading space until it was sold. Now, although still based in
Toronto, it’s a division in a much larger Japanese e-commerce company
with many competing interests. And with limited resources, Kobo will
have to perform sales and technology miracles in order to keep pace in
the e-reading market and provide a meaningful third option to Amazon.com
Inc. and Apple Inc., behemoths that offer customers far more than just
digital books.
But people in the
industry say Kobo plays a vital role in the marketplace. It may not
produce hit TV series, but it does give readers and publishers something
the big guys don’t – a total focus on serving the e-reader and
improving the digital reading experience.
So
it’s okay with Tamblyn that Kobo is unlikely to overtake Amazon and
Apple. “Our goal isn’t to be the world’s largest manufacturer of
e-reading devices [Kobo is second-biggest],” he says. “It’s ‘Can we be
the best possible bookseller?’”
Tamblyn
was a crucial player in the rise of Kobo, but his history in online
book sales goes back to 1996, when he was part of a small team in
Guelph, Ont., that created Canada’s first online bookstore, a year after
Amazon.com was founded. But the story of how he started that project
goes back to his love of music and composing.
Raised
in Rockwood, Ont., Tamblyn was always surrounded by music. By day, his
father was a biochemist and teacher, and his mother was a guidance
counsellor; but after hours, dad directed choirs and mom played piano.
Tamblyn’s grandfather, a dairy farmer, played trumpet in bands during
the Depression, and his gigs were often his only source of cash. When
Tamblyn announced he was going to study music at Wilfrid Laurier
University, his grandfather took his side: “You’ll never starve,” he
said.
To put himself through school,
Tamblyn worked in the kitchen at a Guelph institution – the bookstore,
movie theatre and café known as The Bookshelf. One day, a composition
instructor asked Tamblyn about the kind of work he did, and whether he
might get hurt doing it. Cuts and burns could affect his ability to
perform in class, the teacher warned.
“‘If
that happens to you, you’re out, you’re gone,’” Tamblyn recalls the
teacher saying. “‘You’re out of the program.’” Shortly afterward, when a
manager announced that there was a job opening in the book store, “I
dropped my apron and went into bookselling,” Tamblyn says.
In
1996, The Bookshelf’s co-owner, Doug Minett, was approached by Scott
Remborg from Sympatico and asked if he might be interested in building
the first online bookstore for the portal’s burgeoning dial-up Internet
audience. Tamblyn, sporting dreadlocks and still going to Laurier
full-time, was one of three employees who stepped forward to help Minett
launch Bookshelf.ca.
“Our merry band
pulled off building this website in about six months,” Minett says.
“Everything [Tamblyn] touched … he understood the right way to do it.”
Minett
quickly realized the hard part of building an online bookstore was
managing the inventory and staffing needed run a national fulfillment
centre, and that required a bigger partner. Negotiations began with
Heather Reisman’s Indigo Books and Music in 1997, although the Indigo
people were astounded that the motley Bookshelf team from Guelph had
built the site without Bell’s help.
Bookshelf.ca
launched as an independent site, but it wasn’t long before it was
bought by Indigo and rebranded as Indigo.ca. The deal closed in 1998,
and Tamblyn went to work for Indigo. That marked the end of his musical
career, but he says he still draws inspiration from the discipline:
“Music is a craft. You start bad. You watch people who are really good,
you work really hard and at a certain point you start to try new things.
You start to innovate and you start to make your own work real.”
Tamblyn
left Indigo in 2000 for another tech startup, then returned to
publishing in 2003 as CEO of BookNet Canada, again with backing of
Minett, a board member of the new entity. BookNet was an experiment,
founded with help from the federal government with the mission to track
Canadian publisher sales data after the implosion of Chapters Inc.’s
Pegasus distribution centre in 2001 and the bankruptcy of distributor
General Publishing in 2002. (It still operates today, run by Noah
Genner, another veteran of Bookshelf.ca.)
By
2009, Tamblyn was a natural fit for another new book startup that was
being incubated inside the country’s last remaining big bookstore chain,
Indigo. Cofounded by Michael Serbinis, the company that would become
Kobo started as digital reading project called Shortcovers.
Tamblyn
joined the team of just 25 people who were working away on a device to
compete with Amazon’s Kindle, launched in 2007. When the company was
spun off as an independent unit in December, 2009, Tamblyn became a key
part of the global expansion team that sprinted off to international
markets in an effort to head off the Amazon colossus.
“I’ve
seen him step into big moments and just wow people,” says Todd
Humphrey, the former vice-president of business development at Kobo.
“I
was in Paris working on distribution deals –with retailers – some of
the publisher deals were going sideways,” Humphrey says. Thinking Kobo
had 24 hours to solve the issues or cancel the planned France launch,
Murphy called Tamblyn. “Within 12 hours he was sitting next to me in a
board room in Paris. It wasn’t just getting on a plane – anyone can do
that – he was getting in a boardroom nailing down critical publishing
relationships. Here’s a guy who really figured out what the partner
needed, and enabled us to get deals done super fast.”
Tamblyn
has scored points with publishers by presenting Kobo as a friendlier
alternative to Amazon. “At industry conferences, [Amazon] will show
graphs with no numbers to go with it. Michael will get up on the same
platform a few minutes later, and spend half an hour going into prices –
to the nth degree, down to which genre is selling better in which
country,” Humphrey says. “The hatred the industry has for Amazon is
incredible.”
But as Kobo’s partners in
the publishing industry see it, the challenge is not just that the
company’s rivals are huge; it’s also that they offer ecosystems of
digital products and services that make them more than just booksellers.
“Kobo
is competing with companies with massive resources that are building
out lifestyle platforms,” says Robert Wheaton, chief operating officer
at Penguin Random House Canada. “Amazon is commissioning television
[series] to bring people into their Prime platform, from which they can
also buy books, and Apple is innovating on phones where they can also
buy books. I would imagine that’s super-challenging to compete with.
Kobo’s backed away from the multimedia tablet industry. Their No. 1
customer is first a book reader.”
In
2011, after only a few years of breakneck growth and growing costs,
Indigo – the controlling shareholder – and its partners agreed to sell
Kobo to Japanese e-retailer Rakuten for $315-million. On its face, it
seemed like a win: Borders, an early Kobo investor and its only foothold
in the U.S. market, had gone bankrupt earlier in the year, and the
Rakuten deal represented a 10-times return on Reisman’s investment.
According
to McIlroy, the Future of Publishing blogger, selling was a huge
mistake that cost Indigo – and Canada – the opportunity to build a
global reading company. “Not only is Indigo not a digital player, as a
bookseller, it continues to drop market share. And since it gave up
Kobo, the percentage of its sales as e-books dropped from over 5 per
cent to under 1 per cent.”
Tamblyn
describes things differently: Because of Indigo’s early investment into
the project, “Canada remains as probably the only English-speaking
market where Amazon doesn’t run the table on books and e-commerce.”
The
sale to Rakuten also spelled the end to most of the founding executive
team. Serbinis and some of his closest collaborators left, and Rakuten’s
Takahito “Taka” Aiki became CEO. Tamblyn stayed on. “We had so much
great stuff still to do, and I wanted to see this turn into one of those
companies that actually goes the distance,” he says.
Things
changed, though. There were layoffs and, these days, with about 360
employees, the company is smaller than it was in 2012. Tamblyn was named
president and managed teams on sales, both publisher and retail
relations, and content acquisition, not to mention the overall
experience of Kobo’s web and mobile platforms. There were also
expansions into 12 more markets in the first 14 months. “I was 100 days
on the road last year,” he says.
Aiki
expanded Rakuten’s e-reading portfolio, acquiring Aquafadas (digital
publishing software) and OverDrive (it distributes e-books to
libraries), and lowered costs at Kobo to the point where the division is
essentially break-even. On Jan. 1, Aiki moved up to become chairman,
and Tamblyn was named Kobo CEO.
“He
should have been made CEO two years ago, and now they’ve gotten it
right,” says Humphrey, who admits he may be biased – he was the MC at
Tamblyn’s wedding. “When all of your peers leave a company, when you’re
the last man standing, he figured out how to keep that company running
forward inside the Rakuten walls … That’s a war story.”
Wheaton
describes Tamblyn as a “kinetic” speaker at events, and also a funny,
accessible business partner. “Everyone enjoys working with him, he’s
respected and trusted.”
Kobo’s problems
can’t be solved with charm. Its average customer is more likely to be
50 than 20, scary numbers for a technology company, even if it’s built
on reading. And losing a lot of money to grow is no longer an option.
Kobo is not a startup any more, so it’s not as easy to recruit talented
people and attract investors.
There are
bright spots. Self-publishing sales have grown rapidly, Tamblyn says,
and the Kobo Writing Life self-publishing imprint is now 15 per cent of
all the books it sells. But the per-unit revenue is often lower than
traditional publisher offerings. Kobo also has to compete with services,
such as Wattpad, that offer user-generated writing for free.
“Their
great Achilles heel is they don’t have a significant U.S. business,”
McIlroy says. And despite Kobo’s first-mover advantage in international
markets, competition globally is increasingly intense. “Apple, for a
long time, they were bozos,” McIlroy says. “In the last several years
they have recognized their bozo-ness and tightened up. I am worried for
Kobo. I don’t know how Michael is going to maintain Kobo’s market
presence.”
From Wheaton’s perspective,
while it may look like e-reading has settled into a niche of 20 per cent
of book sales in the U.S. and Britain – slightly less in Canada at
about 17 per cent – analysts shouldn’t assume the status quo will
continue. “The only time things truly seem stable is when there’s big
change around the corner,” he says. “Preparedness for and openness to
change has been and is going to be table stakes for anyone in the
industry.”
Creating a new channel for
growth and keeping up with Amazon and Apple won’t be easy. But Tamblyn
wants to remind Kobo fans that he’s not alone in the fight. He has a
team.
“You can’t do it by yourself,” he
says. “You’ve got to rope people in. Convince them that it’s
[something] worth spending their time on. You’ve gotta convince them to
bring their talents and their skill and work really, really hard to make
it a reality. And then you’ve gotta find an audience for it, too.
“I
love this business because it uses a great deal of technology that’s
implemented and designed very well to solve a very human, very cultural
problem. It’s one of such magnificent scope and scale, it will keep me
busy for a while.”
Even though Tamblyn doesn’t write music any more, it seems he’s still a composer.
Source: Globe and Mail
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