The Future of E-Books

Software and consumer-electronics giants as well as some investors are joining the publishing world for the rise of e-books. First stop: higher ed

by Kimberly Castro From Standard & Poor's Equity Research

Books printed on paper are portable, require no technical expertise, create nostalgic memories, and above all, are familiar to all humankind. Not surprisingly, our reliance on paper dates as far back as 3000 B.C., when the Egyptians beat strips of papyrus plants to use as writing material. But what if you could carry a book or even a stack of 100 books right in your back pocket? Imagine books with a built-in dictionary and search functionality; the ability to highlight text, underline passages, or write comments; plus graphics and animations floating across the screen.

You may be skeptical, since the history of e-book devices is a disappointing one. E-books of the late 1990s—most notably the RocketBook and SoftBook Reader—were clunky and had battery lives more suitable for a comic than War and Peace. Users also needed to be connected to a computer for book or article downloads. As a result, these devices generated less than inspiring sales.

But with today's significant technological improvements—including cheap LCD screens that flex and feel like real paper, ultra-low power consumption, lightweight form, audio, touch screens, and full-color displays, as well as an endless stream of electronic content to dip into—software giants, consumer-electronics producers, publishers, and some investors are now banking on a restored future for e-books.

E-Book Classroom

Standard & Poor's thinks e-books could have the strongest future in higher education since today's students are more adept and versatile in their use of multimedia. Electronic textbooks can allow for greater interaction and can be tailored to fit each course.

During its third-quarter earnings call, The McGraw-Hill Companies (MHP), the parent company of S&P and BusinessWeek, reported that digital products are contributing to the company's growth across all of its college and university imprints, and in professional markets. Terry McGraw, McGraw-Hill's chairman and chief executive, expects more growth in the digital world with the fall debut of CourseSmart, a new college publisher cooperative e-book and e-commerce Web site. "For students, CourseSmart offers a lower-cost alternative and all the functionality of a Web application," says McGraw. "Our higher-end group is starting with 148 e-books. Over time, thousands of textbooks will be available on this common platform."

Electronic Reader Options

Makers of e-reader devices are beginning to enter the market. There’s buzz on the Internet about online retailer Amazon.com's (AMZN) Kindle, an EV-DO (evolution data optimized) e-book reader priced between $400 and $500. It can connect wirelessly to an e-book store on Amazon's Web site. The device has a keyboard, scroll wheel, and progress indicator. The device is said to include reference books and subscriptions to major newspapers including The New York Times and The Wall Street Journal.

And just last year, Sony (SNE) partnered with E Ink, a provider of electronic paper display technologies, to create the Sony Reader, priced at around $300. Sony says its Sony Reader has a six-inch screen, enough memory to hold 80 books, and a battery life that lasts for 7,500 pages. There are also are more than 15,000 titles available at the Sony Connect online store, from Stephen King's The Dark Tower to Steven Levitt's Freakonomics.

There are a handful of other e-readers encroaching on Sony's territory: the Hanlin eReader from Tianjin Jinke Electronics, the Panasonic (MC) Words Gear, the STAReBOOK from eRead, and iLiad from iRex Technologies.