BasicBookReader to AlphaBKZ – Business Model 1.0

I have been experimenting with a way to improve my Ebook reader in order to monetize it to pay for servers and allow users to purchase books. My solution is simple enough, I intend to create another Ebook reader which will be free to download, but you must pay a subscription fee for access to books. Similar to a library fee or the way Netflix functions. This Ebook reader will be dubbed AlphaBKZ, and will run alongside the entirely free and Open Source version BasicBookReader.

The main reason AlphaBKZ will remain closed source, is because I am using both closed source libraries. I also need to keep it closed source (for now) to more easily obtain funding, keep the application secure for authors, and any insightful algorithms be proprietary for enough time to obtain a profit.

The trouble with this idea, is that authors/publishers will be hesitant to change, so my business model needs to be air tight and in their benefit.

Business Model 1.0 – Income

The intended way to obtain income is simple enough. I intend to have a tier system as follows (costs may change):

• Free Book – No payments required, you can download books off copyright or copyleft books. Believe it or not there are even a large number of textbooks that are excellent and off copyright.
• Fiction Books –  $8 – $12 per month – This figure is drummed up with the idea that people often share books, so it would be beneficial for the publishers if the prices were relatively low.
• Biography/History Books – $12 – $15  per month – This figure again is because people share books and although these books require more work people who read these books are more willing to use the library.
• Text Books – $50 – $100 per month – This figure may seem low, but that is $600 – $1,200 yearly and given how much it costs to print a colored book, this seems profitable for all parties involved.
• Journal Articles – $65 per month – This seems high and it is, but I think it is fair to obtain cutting edge information.
• News Articles – $6 per month – No idea, it will likely be a per news outlet basis.

The way the author/publisher will receive funds will be based on how much time is spent reading a particular book. That is to say, if Harry Potter is read 80% of the month, that publisher/author will receive 80% of the monthly fee. If the fee is $10, the publisher/author will receive $8. This overall is less than if Harry Potter was bought outright, however that book will not be shared again. Meaning it is likely more profitable to the publisher/author because (s)he gains more income than they would have if a $15 was shared only one time ($15 / 2 = $7.5).

Further, the statistics I have built into the Ebook reader can improve the content of the book and can provide information to publishers on how to obtain a larger slice of pie. Since this model is built with this in mind, larger publishers with a “better” selection of books will obtain a larger slice of the pie to begin with, meaning they are much more willing to sign up.

Business Model 1.0 – Profit

The tier system is highly competitive for publishers/authors. The way in which I intend to combat their fears of possible losses is by giving them a 50 year contract which ensures that I never make over a certain percentage profit per book. I will agree to something like 1 – 5% profit (after expenses) on each months payments (depending on what investors agree to). This would be less than the average book store, and I believe Amazon as well. Which begs the question, how do I intend to make a profit? This sounds like it would barely cover operating costs! Exactly.

I have no intent to make money directly from the book reader. I simply want the world to obtain more knowledge and am willing to do what ever it takes to undercut everyone in the market by creating an environment where authors profit the most, I profit the least, and I have the cheapest books for the users. Accepting that I make the least amount of money likely means investors will be hesitant, but wait there’s more!

Rather than making a profit directly off each months payments I will make a profit by using the same technology to improve our every day life. I have some interesting and (as far as I know) never been done ways of doing gathering and analyzing statistics. It seems to work outstandingly well, and I believe it can be used in other realms. That being said, I would rather make a much larger profit off using these analytics for the marketing/advertising, finance, technology, entertainment, really any industry.

I believe that the key to the success of this endeavor is gaining traction via the book or marketing industries and proving its worth, before pitching to other industries. To be honest, I believe this is a billion dollar idea/venture and I will not release how exactly I generate amazing statistics yet, but I will at an official launch.

Business Model 1.0 – Costs

The costs of starting up this business include the following:

• Development – estimated <$100k for first year
• Licensing – estimated $100 – $200k for first three years
• Hardware – Currently $0, final estimated $600k – $3m. This will take years to accrue.
• Hosting – estimated $10k – 500k per year, depends on speed and size, no idea at this point.
• Total (estimate): $1m – $3.7m within the first 3 – 5 years

These are clearly high costs, however the hardware costs will be absorbed over time and are not an upfront cost. Further, development of our own hardware could reduce licensing to $0 as well as (likely) more than halve the hardware costs. If this was the case the development costs will go up, but it would not be outrageous because the development is relatively straight forward.

If we developed our own hardware I am ball parking the figure at $1.5m over a 5 year period. This does not include the cost “per book” because I intend to not pay “per book,” but rather license each publishers book individually. This means the user literally is absorbing all of the cost.

Business Model 1.0 – Cost/Benefit Analysis

For reference, the total publishing industry is currently worth about 130 billion per year [1], about 80 billion of that comes from the U.S. (26%), China(12%), Germany(8%), Japan(7%), France(4%), U.K.(3%)[2].

Assuming this business does not go into anything other than the book industry (for simplicity) and assuming after three years (so fourth year) with about 200,000 users on the final year, with an income of 2.5% on each months tier access (this is the low end).

Users (these are just randomly generated, to be honest I think textbooks will be much higher):

• 200,000 users use only the free tier ($0/month)
• 40,000 use the fiction tier ($10/month)
• 10,000 use the textbook tier ($50/month)
• 2,000 use the history/biography book tier ($13/month)
• 400 user the journal tier ($65/month)

Total: $400,000 (fiction) + $500,000 (textbooks) + $26,000 (history/biography) + $26,000 (journal)
Total Income (Monthly): $952,000 / month
Total Income (Yearly): $10,424,000 / year I only counted 10 months, because it’s likely there will be a large drop over the summer.

Total Costs (Yearly): $1,350,000 = $200,000 (hosting) – $800,000 (for 6 employees) – $100,000 (licensing) – $250,000 (hardware)

Total Income (Yearly): $9,074,000 = $10,424,000 – $1,350,000

Total Profit (Yearly): $226,850 = $9,074,000 * (0.025)

Clearly this is not that profitable, but that is alright. The idea is not to be highly profitable necessarily. On the other hand, if we assume 1 million users from around the world, and a much larger portion using textbooks (since it is much cheaper than purchasing them):

• 1,000,000 users use only the free tier ($0/month)
• 200,000 use the fiction tier ($10/month)
• 100,000 use the textbook tier ($50/month)
• 8,000 use the history/biography book tier ($13/month)
• 1,000 user the journal tier ($65/month)

Total: $2,000,000 (fiction) + $5,000,000 (textbooks) + $104,000 (history/biography) + $65,000 (journal)
Total Income (Monthly): $7,165,000 / month
Total Income (Yearly): $76,980,000 / year I only counted 10 months for textbooks, because it’s likely there will be a large drop over the summer.

Total Costs (Yearly): $1,350,000 = $200,000 (hosting) – $800,000 (for 6 employees) – $100,000 (licensing) – $250,000 (hardware)

Total Income (Yearly): $75,630,000 = $76,980,000 – $1,350,000

Total Profit (Yearly): $1,890,750 = $75,630,000 * (0.025)

Percentage of total market: .05% (0.00058176923 = 75,630,000 / 130000000000)

To be honest I believe it could even be much higher than that if I do this correctly, however I am going to be conservative on my estimates. Further, I believe the actual profit is with the other industries where I will likely make a profit directly from a service fee.

Business Model 1.0 – Market(s) Penetration and Expansion

I believe because I am offering a service which can provide better analytics, with a larger profit margin for publishers/authors as well as cheaper for the users. The market penetration will be extremely large, I would guess 1 – 2% minimum for the book industry (or ~$30,000,000 to $60,000,000 per year).

For the marketing/advertising, entertainment, etc. I believe we can become highly profitable, but the penetration will be hard to determine because there is currently not a product out there similar to the one I am building and have yet to release. This means I should have a huge market penetration initially because I can make up 100% of my specific niche. I would estimate (given the size of those industries) I could easily exceed $5 billion per year within the first 3 years with little to no additional costs, scaling very well. This is highly specialized and very useful.

Business Model 1.0 – Competition

Amazon, Google, Apple. They are clearly competitors, but they lack the ability to pivot. I am currently a one man show and can quickly adapt to situations. Of course I have to compete with the big guys, but given I am quietly building this product and will release it “under the radar” so to speak. I believe I have the advantage and should be able to quickly take over the market(s) outside of the book industry before they even realize there is a market available for this product. This means at the very least they are more likely going to offer to buy me out as opposed to building their own. At this point I do not know what I will do since I do not even have a fully working product (although I am showing excellent results).

Business Model 1.0 – Thoughts

This is a lot of work, and will continue to be a lot of work. However, I believe it is worthy of my time and can be highly profitable. I hope that within the next year I can receive an invitation to a startup incubator and eventually receive funding or pre-orders. On a side note, I believe I will call the company Synaptitude, because the goal is to develop more synapses in the world. I love learning and would like to help the world improve and grow.