Born to Disrupt
Kobo CEO Michael Tamblyn on how a Canadian startup took on some of the world's biggest retailers, disrupted the nation's book market and built a thriving global brand
The Economist’s Canada Summit attracted a jam-packed lineup of business luminaries and big name politicians (including the Prime Minister of Canada Justin Trudeau) to discuss the future of the Canadian economy – and how disruption is a necessary exercise in the quest for global success.
As the leader of one of Canada’s startup success stories, Rakuten Kobo CEO Michael Tamblyn was invited to weigh in. He was billed as a “Big-bang disruptor”, a business leader with the potential to shape the future of Canadian business.
Here is the talk he gave – a remarkable account of how Kobo overcame great odds and showed maverick thinking in order to grow into a global leader in digital reading with 27-million customers in 20 countries.
Economist Events will identify 3-4 of Canada’s disruptive key players who have the potential to shape the future. These are individuals who are already planting the seeds to catalyze change across policy and business--either as entrepreneurs, policy advocates or researchers.
They say when you’re starting a new business, you should look for the white space, be first to market, go where your competitors are not. Or there is another option. You can do the exact opposite. In 2009, starting here in Toronto with a handful of people, we picked a fight with the largest ecommerce company in the world, with the most successful hardware company ever, with the world’s largest book retail chain, and the most profitable search engine in history. Seven years later, 27 million users, 20 countries, millions of devices, tens of millions of ebooks and a $315M acquisition later, I get to tell you why that worked, why being Canadian mattered, and why sometimes the best revolutions don’t look like revolutions at all.
Kobo was born to disrupt. More than that, it was an exercise in intentional self-disruption. We were incubated inside Indigo, Canada’s largest book chain, in 2009 in answer to the strategic question: “What happens if many of the Canadians who are currently buying and reading print, start reading digitally?” Kindle had just launched in the US, Sony had ereaders in market, the iPhone was just released. Change was coming: The only question was: was someone was going to do it to us, or would we do it to ourselves.
We chose option B. In a moment of truly remarkable strategic bravery, Indigo funded an organization to disrupt itself and we spun Kobo out as a separate company with a specific mandate — to turn people into digital readers.
And that’s exactly what we did. Today, about 1 in 5 books sold in Canada is an ebook, in some categories it’s 1 in 3 or higher and Kobo is, when last I checked, the largest retailer of ebooks in Canada and one of the largest in the world and the second-largest manufacturer of eReading devices globally.
It turns out, we did three big things right.
The first was thanks to an especially potent mix of bravery and realism. We could tell that building a great ereading service was going to be a big, capital-intensive project — and that not only was Canada not a big enough market to sustain it, almost no most national book market was big enough to sustain the level of investment that would be required to compete with Amazon or Apple or Google. Go big, because you can’t stay home. We were leaving the era where each country has a dominant book retailer or two and entering a new era where only a few global players would have the scale to compete. The good news was that it meant that the challenge that Indigo was facing — protecting their customers in the face of digital onslaught -- was a challenge that every retailer who sold books anywhere in the world was going to face. And so from the very beginning, we set out to be one of those global players, because the alternative was not doing it at all. We built systems on the assumption that we were international, we hired people who were experts in other markets. Even when we were tiny, we were tiny and global.
The second thing we did right was to let go of the gravitational pull of the US. in our first couple of years, we could already see that the US, the richest market for ebooks in the world, was about to become a battleground. It was the home turf of Amazon, Apple, Google, and Barnes & Noble, and everyone wants to win at home. So while our competitors were all engaged in a very expensive fight for control of the US market, we quickly and quietly expanded into every other single country that looked like a candidate for digital growth, places where we could get in early, start building brand and market share. And we gained months, sometimes years of breathing room as competitors later struggled to internationalize systems that had been built to serve the US market alone. As those markets have grown, we have been able to grow with them. So now we find ourselves with the majority of our revenue coming from outside of Canada, with active retail presence in 20 countries, delivering ebooks to another 170. And as some countries slow down, others are accelerating, allowing us to continue to see double-digit annual growth as other retailers who focused solely on the US are flat or going in reverse.
The third thing we did right was embracing Canadian-ness both to succeed in Canada but also as a component of our international success. It turns out that being Canadian has helped us in a surprising number of ways.
Publishers and retailers in France are particularly cautious about working with foreign retailers, especially related to ebooks, but our membership in La Francaphonie and sensitivity to France’s tradition of cultural protection helped to get us a partnership with France’s largest retailer FNAC and a very significant French business. Our history as a Commonwealth country who had forged our own distinct English literature helped our partnerships in Australia and New Zealand. In Belgium and Switzerland, we understood multilingual politics, with all of its richness and complexity. In Mexico, we shared with both publishers and retailers the struggle of fighting to keep a distinct national culture while living right next to a neighbour who casts a very long media shadow. Situations like that repeated from the UK to Netherlands, from Turkey to Brazil. And they allowed us to form alliances and partnerships and reach customers that our competitors could not.
And everywhere, being Canadian meant that we are comfortable with the idea that books are more than just things to be sold, more than just units or “content". They are the container of a country’s dreaming, its stories and arguments and history, its most dangerous suggestions and serious thought. Books live at the intersection of culture and commerce, with businesses, policy-makers and consumers all crossing paths, a source of pride, heritage and identity with which we as Canadians are entirely familiar.
I’ve talked mostly about Kobo as an international business. In doing so, I haven’t talked about our beautiful devices, innovations in software, our Big Data-driven research into reading behaviour and predictive analytics; the fact that this is the first major digital revolution that isn’t driven by men aged 18-25 but is instead being powered by women who love reading and are 50 years and older. Each of those is worth 5 minutes on their own. But I’ll close by bringing us back to the theme of disruption.
When we first started to get some traction, there was a fairly strong narrative that ebooks, apps, eReaders, and self-publishing were part of a digital wave that was going to wash away bookstores and publishers. And it’s not the first time that warning has been given. Ten years before that, ecommerce was supposed to do the same thing. And before that, big box retail.
Except that, miraculously enough, it turns out that in each case what looks like a disruptor may be something else — a spark or a catalyst. We always believed that this was a revolution that could happen with authors and publishers and retailers, rather than a revolution that happened to them. And we were right. This industry has adapted and evolved, and unlike music or movies has done so without catastrophe. Bookstores doubled down on community and service and attractive physical spaces. Publishers made paper books more beautiful and collectible while developing digital skills of their own. Indigo took the dividends from the sale of Kobo to reshape itself as a cultural department store with books surrounded by lifestyle merchandise for adults and children (and a few shelves for Kobo as well!) And we keep innovating as we try to move from 1 in 5 to 1 in 4 and beyond.
As a country, we know a thing or two about quiet revolutions. And it turns out, we know how to export them too.