Hanwang Sees Opportunity Amid Chaos of China's E-book Market

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This is a chaotic time to be in the e-book business and Ray Zhang, the chief strategist for Hanwang Technology, China's biggest maker of electronic readers, is the first to admit it. Likening China's burgeoning e-book market to the fragmented Warring States period of Chinese history before the country was united, Zhang sees opportunity amidst the mayhem.

"If you look at the trend of digitization of entertainment, books and print media have been by far the slowest to come around," Zhang said at a talk on the state of the Chinese e-book market in Taipei. "But they are also the most important. In changing the way we read, we change the very way we live and that's very exciting."

According to research by DisplaySearch, China's e-reader sales will jump from 800,000 in 2009 to 3 million units for 2010 and by 2015 the Middle Kingdom will eclipse the United States as the world's largest e-book reader market.

With a hold on 66 percent of the market share in e-book readers, Zhang is bullish on Hanwang's prospects. This year the company's revenue is expected to jump 150 percent to $208.6 million on the back of the sale of nearly 1 million readers. By comparison, DisplaySearch estimates Amazon sold 3.3 million Kindles last year.

But China's e-reader market is about to get much more competitive. Earlier this year, Sony announced plans to launch its reader in China and domestic giants like China Mobile and Baidu.com have plans to follow suit. In addition, Apple's iPad will soon enter the fray.

Still, Zhang was confident of Hanwang's ability to compete, citing the difficulty foreign firms might have overcoming cultural impediments. "By their very nature these are cultural products, [and foreign companies lack] the ability to understand which books and media outlets are or will be the most important," he said.

Chinese e-reader companies could easily outgrow Japanese ones, said media commentator David Kilburn. "Readers and tablet computers are still very new and evolving at high speed," he said.

"Apple has got the cutting edge right now, and several new Chinese companies are coming out at a high speed, so suddenly Japanese companies are a step behind," Kilburn said.

Local companies will also struggle as domestic competitors lack the expertise to bring a high-quality electronic reader to market, Zhang said. "Most mobile phone providers cannot even produce a high quality phone, so why would we expect them to be able to come out with a fantastic reader?"

Access to high-quality content is the linchpin to continued growth and though many publishers in China have been hesitant to sign agreements with electronic reader companies, that trend will change naturally as electronic readers supplant print media, Zhang said.

While Hanwang rules the roost in China, there will likely be quite a bit more volatility before the industry settles down. "There is no e-reader that gets all necessary features in one footprint. Too many companies are out there trying different options. In a year we will know much better what readers want and which companies are able to supply that," Kilburn said.

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