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Michael Tamblyn knows he has his work cut out in the e-reader market. (Fred Lum/The Globe and Mail)
Michael Tamblyn knows he has his work cut out in the e-reader market. (Fred Lum/The Globe and Mail)


Kobo CEO faces uphill e-book battle against Apple, Amazon Add to ...

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.

Editor's note: An earlier digital version of this story incorrectly spelled the name of Wilfrid Laurier University. This version has been corrected.

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