Russia's Bookmate takes on the global e-book giants

By bne IntelliNews June 6, 2014

Ben Aris in Moscow -


Launched in 2010, is Russia's fastest growing online book service, whose radical subscription model threatens to disrupt the global giants of the electronic book market.

Subscriptions are a new idea to the book-selling business. The rampant intellectual property abuse in Russia meant that Bookmate had to do some innovative thinking if it was to make money from its users. "It has been an advantage setting up the business in Russia," says Simon Dunlop, Bookmate's co-founder. "We were forced into thinking out of the box when it came to monetizing e-books. Like any emerging market, piracy is rife. It is impossible to make a user pay for a title when it is so simple for them to download a pirated copy for free. This pushed us to concentrate on the overall experience, not just on selling titles.”

That led to subscriptions. Music blazed the trail when it comes to getting punters to sign up and pay a monthly fee for content and the industry has now accepted that subscriptions is the way forward. Sites like Spotify and Pandora are growing exponentially, while the number of downloads of songs on iTunes has begun to slow. Video is going down the same path with services such Netflix, but books have been slow to convert to the new paradigm.

Part of the reason is the way people read books. If you listen to music or watch a movie, it is possible to do something else at the same time. But the book is a serious commitment of 10 to 20 hours of your time when you can do nothing else. That means the user is much more committed to choosing a title and the publishers compound this behaviour by focusing on the sale of files or titles.

Russian reading habits

Reading e-books has grown fast in Russia. Today, Bookmate has 1.2m users and carries 400,000 titles, including 250,000 Russian titles (the lion's share of all the best-known Russian authors – both classic and contemporary). The company has signed deals with about 300 Russian publishers that represent about 90% of Russia's publishing industry, worth a total of about $2bn in 2012, of which the licenced e-book business make up only 0.4% of the total. By comparison, e–books already make up 11% of the publishing business in the US and just the e-book business alone is the same size as the entire Russian publishing sector, or $2bn in 2011, and this is doubling every five years or so.

Bookmate identified several Russian reading habits that have led them to their subscription model. "For many Russians, their phone is their primary computing device and they tend to read books on mobiles more than any other devise," says Dunlop. "A key element of our success has been to integrate e-books into the device where Russians spend most of their time. Reading competes with mobile games, social networks, Twitter etc. so to win you need remove any barriers to reading, such as having to carry a separate device such as a tablet and to provide the content in a way that adds value for the subscriber.”

One of the most basic changes the subscription model brings is the ability to start books to see whether you like them, and discard them without penalty if you don’t. "The model changes everything," says Dunlop. "When you decide to read a book it is an emotional decision. When you decide to buy the title you also have to make a monetary decision. By removing the monetary decision after you have subscribed, you have the freedom to read whatever you want and it is a more satisfying experience for the user."

Finding books that you might like is actually quite difficult. Most people rely on the recommendations of friends or book reviews. The unfettered access to over a million titles means that Bookmate can take advantage of social networking in order to help people find titles that they will enjoy.

Once you sign up to the service, you can link friends who can recommend books that will automatically appear in your bookshelf. The company is rolling out a service that scours your Twitter and Facebook feeds for book mentions: if anyone in your circle mentions a book, then it will appear in your bookshelf. "This totally changes the relationship between the reader and the publisher. In the past publishers have financed the physical printing and distribution of books. Then they collect the money from the retailers and return it to the author," says Dunlop sitting in their spacious offices on top of the iconic Central Telegraph building in the heart of Moscow. "Today, with electronic publishing all of these services have disappeared and the role of the publisher is more like that of a sports celebrity's agent, managing the author's brand rather than producing physical books."

In the West publishers have been reluctant to switch to a subscription-based model because they are afraid it will cannibalise their existing business. However, in developing markets the publisher's business has already been cannibalised by piracy, so they are much more open to the prospect of incremental income through a subscription model.

Moreover, the online book business allows the same publishers in the West to tap into the huge emerging markets that they have not yet touched. "Western publishers have invested heavily in printing and distribution networks in the West. But because of the piracy they have made few investments in emerging markets. There are more English speakers outside of Britain, USA, Canada and Australia than inside. Altogether, if you add up the number of English readers in places like India, Nordics, SE Asia and Eastern Europe, there are over 400m people which are not catered to at all," says Dunlop.

Western interest

Bookmate was launched with a Russian catalogue, however it has signed contracts with publishers producing English, Spanish and Turkish books, and is launching its services in at least six new non-Russian speaking countries this year, which has piqued the interest of some of the more established publishers in the industry. "We are disrupting traditional models used by Google, Apple and Amazon. What is true for emerging markets can also be applied to more developed markets. Spain has one of the higher levels of book piracy in the world. We have been able to mitigate piracy issues by enriching the user's experience," says Dunlop.

Subscriptions tripled in 2014 as Bookmate introduced new ways of selling their product. It comes back to leveraging that substantial commitment a reader makes when they decide to spend several days reading a book.

Bookmate partners with several types of distributors in what it calls a B2B2C (“Bookmate to Brand to Consumer”) model in order to distribute and sell its subscriptions. Most important among them are mobile phone operators, which have been losing their traditional voice business to online services like Skype, WhatsApp and Viber. These alternatives cut into mobile phone companies' revenue and also mean that users tend to change services regularly – the so-called churn.

Bookmate has already signed deals with leading mobile phone operators in Russia, such as Tele2, so that its service can be bundled as a value-added offering to their customers. "The mobile phone companies love it because once a user spends some time and effort to build up a library of books on their phone they're much less likely to change services and be forced to build their library all over again," says Pavel Pak, head of Bookmate's business development. "And it is good for us because the mobile phone companies already have a billing relationship with their customers.”

At RUB150 a month ($5), the service is inexpensive and Dunlop says that most punters trying out the service out for three months usually decide to subscribe.

In addition, Bookmate partners with handset manufacturers (such as Samsung and Philips) – both local and international – where Bookmate is pre-installed on mobile phones, and also with e-retailers looking to increase the life-time value of their customers.

Finally, Bookmate has struck deals with the Moscow City government to provide this service in public spaces. People can use a limited version of Bookmate for free on a park's WiFi or when they leave a library they can continue to read the book on a handheld device. "Over most of the last 10 years Russian online companies have mainly been copying ideas that are already working in the West," says Dunlop. "But as the market matures we start to see Russia producing innovative products that address its more specific problems, that in turn can change the way things work in the rest of the world."


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