Simply Audiobooks Pumps Up the Volume

In 2003, the audiobook rental company launched out of a Toronto basement. Today it's the most successful independent player in the market

by Jeffrey Gangemi

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Back in 2002, Sean Neville had a hunch DVD mail-order rental biz Netflix (NFLX) was onto something big. Sure, DVDs were only just starting to be adopted on a massive scale. But Netflix, though also still under the radar screen of the general public, had acquired 2 million members in just three years. While taking a course to become a licensed securities broker in Canada, Neville had enjoyed listening to the audiobook versions of textbooks instead of reading them. Afterward, he would occasionally rent audiobooks from a store in downtown Toronto, but found it a hassle to get there, and expensive.

So Neville approached fellow Cornell B-school graduate and serial entrepreneur Sanjay Singhal with the idea of creating a Netflix for audiobooks. At first, Singhal was skeptical, since he had never heard of a successful rent-by-mail company for anything. Then he learned about Netflix's phenomenal subscriber sign-up rate. In 2003, the pair launched Simply Audiobooks out of Neville's basement.

Today, the 47-employee Toronto-based company is the most successful independent player in the online audiobook rental market. That market consists of about 10 independent players, including booksfree.com and jiggerbug.com, that compete with mainstream book publishers like Random House as well as offline mom-and-pops operating in brick-and-mortar locations.

Move Toward Temporary Ownership

In 2005, the Audio Publishers Assn. (APA) estimated the size of the total audiobook market at $871 million, up 4.7% from the previous year. The APA also released a 2006 study that found almost 25% of the U.S. population listens to audiobooks.

In borrowing Netflix's business model, Simply Audiobooks is not alone, though one of the most successful of the imitators that specialize in renting everything from video games to handbags. "There's an increased interest in anything that has to do with temporary ownership, as ownership of goods is less of a status symbol these days, and renting goods is seen as smart. Consumers also like to try out as many new 'experiences/goods' as possible, which means the Netflix model appeals," says Reinier Evers, founder of trendwatching.com, a consumer trends company with a network of more than 8,000 trend spotters who scan the globe for emerging consumer trends (see BusinessWeek.com, 1/9/07, "Smart Startup Ideas for '07").

No Patent Problem

Just four years after launch, Simply Audiobooks' sales have grown from $30,000 in 2003 to just over $6 million in 2006. It expects sales of around $6.5 million in 2007. Like Netflix, the business charges a flat monthly fee for unlimited rentals—ranging from $15 for one book at a time to $40 for four. The company runs four shipping centers in the U.S., Canada, and Britain, and plans to expand digital service in Europe and India as well as build about 200 brick-and-mortar stores, predominantly in the U.S.

The threat of Netflix filing a lawsuit against Simply Audiobooks, as it did against Blockbuster (BBI) in 2006, didn't dissuade Neville, 33, and Singhal, 41. "We went ahead with it, kind of thinking 'Damn all the torpedoes; we'll deal with that if and when it happens.' But I'd learned enough in [a] law course to know that the patent was quite likely nondefensible," says Singhal (see BusinessWeek.com, 2/5/07, "To Patent or Not to Patent?").

In the end, the pair didn't have to add that worry to their plates. "There are innovators and there are imitators," says Netflix spokesman Steve Swasey. "Imitators are those that just replicate the service. We went after Blockbuster because they copied our service from top to bottom. Those were models we had patented. I'd consider companies like Simply Audiobooks smart companies—how they took a business model for one service and tailored it to another."