Kobo Rides the Shockwave of Interest in E-books

By any measure, the e-book market has been exploding: U.S. sales of e-books tripled in February, and Amazon said that it recently passed a milestone by selling 15 percent more e-books than printed paperbacks. While Amazon (s amzn) and Apple (s aapl) have been the big beneficiaries of that wave, a Toronto-based player has also been growing rapidly: Kobo, which has its own Kindle-style e-reader and online bookstore, says it now has close to 4 million registered customers, and growth continues to accelerate.

“It took us 10 months to get to a million users, and about 90 days to get to 2 million,” CEO Michael Serbinis said in a recent interview. “Getting to 3 million took about 60 days, and we are close to 4 million now.” Kobo — which is majority-owned by Canadian bookseller Indigo Books — was launched in late 2009, and is now the number three player in most of the major markets it participates in, Serbinis said. The company recently closed a new $50-million round of financing.

David and Goliath

Serbinis says that Kobo has no illusions about its place in the e-book market. “We recognize that there are some pretty huge players in this industry,” he said. “We are the David in the David-and-Goliath story.” But Serbinis said that Kobo believes there is still the opportunity for the company to carve out a substantial business.

“The existing books market is worth about $90 billion,” the Kobo CEO said. “When we were creating Kobo, we thought that maybe 10 percent of that would go digital — now we think that it will probably be closer to 50 percent. And we thought the market would probably see the emergence of a few global brands,” as opposed to the old days of national or regional booksellers. “We figured there was room for a ‘pure play’ e-book company.” Although Kobo is controlled by Indigo Books, it is a separate entity.

Kobo started life as an experiment within Indigo called Shortcovers in 2008 — a venture aimed at producing one-off e-book titles, much like what Amazon is now doing with Kindle Singles. But “it was too early and it didn’t really work,” says Serbinis (although Kobo is working on relaunching the program). So the group developed and launched its own e-reader, which initially sold for $149, and it quickly took off. Serbinis — a Canadian — was brought into the venture because of his background in technology and startups: he was one of the founders of DocSpace, which was sold to Critical Path in 2000 for $580 million.

Although he didn’t know anything about the publishing industry, Serbinis says he had watched what had happened to the music business, and he knew the same thing was in store for books. “There was just no way a local provider would survive, just no way, because of the need for economies of scale,” he said. “The goal was to create something global.”

Amazon “not the partnering kind”

To that end, Kobo has been expanding its European footprint and partnerships with publishers. And while Amazon gets mentioned in some of those conversations, the Kobo CEO says it is rare. “They’re not the partnering kind,” he says. “People don’t want to partner with them” because they have their own retail business that effectively competes with the companies they are trying to partner with. “We are the natural open platform,” said the Kobo CEO.

And what about Google, (s goog) which launched its open book program in December, pitching itself as the partner of choice for publishers and book retailers? “They have not made even a dent in the market,” says Serbinis. “We don’t really see them as a competitor either for the OEMs (original equipment manufacturers who are making their own tablets and e-readers) or for the retailers.” Kobo has signed deals with a dozen different tablet makers including Research in Motion (s rimm), Asus, Acer and Samsung to have its software bundled on their devices.

Serbinis said that the next problem book retailers and e-book reader companies have to solve is discovery. To try and help with that problem, Kobo has launched what it calls Reading Life, a social platform that makes it easy for readers to share their books and create real-time, interactive book clubs. “It’s social, it’s local and it’s real-time,” the Kobo CEO says. “And since we launched it, we’ve seen people spent about 50 percent more time reading.”

Thumbnail photo courtesy of Flickr user TimeTrax23