According to eguan.cn, there will be more than 600 million Chinese readers consuming all sorts of digitally published books next year.  Current forecast is 10% paid users, but operators in the digital publishing space say they are seeing less than 1% and if (and that’s a big IF) it can reach 1%, they will be extremely happy.

Above depicts the digital reading and publishing ecosystem.  Looks rather complex, let me  highlight 4 notable and representative companies here:

  1. VIVA – VIVA is the largest Chinese operator for mobile magazines.  They have 40 million registered users and 80% of the android units shipping in China today are preloaded with this app.
  2. Duokan (多看) –  got its break by selling “36 Rules that Entrepreneurs Needs to Follow”, the Bible for Chinese entrepreneurs and hugely popular Kindle seller.
  3. Kuyun (酷云) – excels at their proprietary recommendation engine that uses semantic analysis and social data to recommend users new books.
  4. Youwei (优微) – is a highly customized reader that pushes relevant news, videos, and even discounts to the reader based on their online social habits.

Here’s a little bit of evolution and history of digital reading to set the stage:

  • 2004-2007:  the concept of digital reading entered China and market started to form.
  • 2008-2010:  digital reading’s the first bubble.
  • 2011: available content lagged behind reader expectations causing market to decline.  Traditional publishers entered digital publishing.
  • 2012: industry chaos and restructuring – many smaller operations quit and changed business models.

Many predict 2014 is when market is expected to  stabilize and its trajectory will likely  follow the same arduous journey as online videos – tremendous amount of cash spent in license acquisition or getting hammered with legal violations before reaching market maturity.

Also, similarly with online videos, advertising is an important component in the digital publishing ecosystem as it provides some cash flow.  But unlike the advertising in online videos, there isn’t a successful formula and framework for display advertising  on reading devices yet.

With much uncertainty and challenge ahead, here’s what these 4 companies are doing to grab market share:

Duokan will continue to produce high quality ebooks like “36 rules that Entrepreneurs Need to Follow” in higher velocity and higher volume.  Their success hinges finding the right partners in offline publishing and distribution to solidify their footing in digital reading.

Kuyun: With the strongest relationship of the pack, Kuyun has over 1000+ content providers powering its semantic analysis and personal recommendations making them #1 in China by content provider count followed by Netease’s 900 and Zakar’s 600.  So far, they have reached 500k downloads in Apps store with 50K active users per day.  Kuyun excels in its algorithm and needs to continue to hold on to this strength in order to win.

Viva is going to digital magazine subscription and/or eyeball building route.  Currently Viva has relationship with virtually all the high profile magazine publishers and strong engagement rates (20% read).  The key for them to succeed is to convert these eye balls to RMB with lots of relevant and targeted advertising.

Youwei is the laggard of the pack in terms of users and market share.  The founding team graduated from Postal University and they excel at data mining and artificial intelligence which are very academic topics.  However, their data mining work is proven in finding useful behavioral patterns from the popular SNS/Microblog, Weibo, and can auto create a page with user’s favorite topics, comments, retweets, saves, likes, etc.

Is there money to be made in digital reading? Yes, but no one knows how long it’ll take and what the returns would be like.  So far the transactions are micro from the actual readers and there’s so signs of increasing ARPU unless something disruptive arrives.  For now, Investors, operators and advertisers are the ones who are subsidizing and sustaining this market and for that we sincerely thank them for bringing us content that we love – for free.