Why Kobo didn't focus only on the U.S., home turf of Amazon

Even though it is ensconced in an office in Toronto's west-end Liberty Village, Rakuten Kobo Inc. knows it has to be nimble to survive in the virtual world where it does business – selling e-books and e-readers.

"This has been a business with a lot of twists and turns. As a Canadian company going against [one of] the largest e-commerce [companies] in the world, we have had to do our share of bobbing and weaving," says Kobo's president and chief executive officer Michael Tamblyn.

To say it's a jungle out there in the e-book business is putting it mildly; Kobo's main competitor, Amazon.com Inc., actually shares its name with a real jungle. It is among the world's top five largest public companies by market capitalization, and just recently it agreed to buy Whole Foods Market Inc., adding to its revenue potential.

Kobo's e-books and e-readers have been competing directly with Amazon's Kindle and with Apple ever since Kobo was founded as an offshoot of Indigo Books and Music Inc. in 2009. Industry numbers are vague, but Kobo is widely considered number three.

In 2011, Indigo sold it at a profit to its current Japanese parent, which Mr. Tamblyn says gives him and his team a fairly free hand to anticipate and out-strategize the competition.

The first key decision Kobo made was to position itself as an international business, based in Toronto, Mr. Tamblyn says. "We decided to not just focus on the Canadian market," he says.

According to Booknet Canada, which tracks the publishing business, the market share of e-books in Canada compared with sales of all formats of books fell in 2016 to 16.9 per cent, compared with 19 per cent the year before.

Instead of concentrating on sales in Canada, "we leveraged being Canadian as a way to international success," Mr. Tamblyn says.

"One of the best ways to get bigger is through international trade," Export Development Canada said in a 2014 white paper. EDC's white paper looked at more than 300 businesses, half of them slow-growing and half of them growing quickly.

"For three quarters of the latter companies, the number one ingredient for success was having an international growth strategy that's integrated into the firm's overall business strategy," EDC said.

"When we started Kobo seven years ago, we could see that the market for books was about to change," Mr. Tamblyn says. We believed that this was going to be the first time that the book business wasn't going to be a national business, but an international one."

It's hard to remember now, but the picture was far from clear back then. "When we started, Indigo was the biggest bookseller in Canada, Barnes and Noble was the biggest in the United States, FNAC was the largest in France," Mr. Tamblyn explains.

"We could see that those barriers were probably going to dissolve in the face of digital distribution. We felt that with e-books, the market would be dominated by between three and five companies worldwide – and we wanted to be one of them."

This led to Kobo making tactical decisions that have given its e-books strong sales in 22 countries, with sales more or less evenly distributed between Asia, North and South America and Europe.

"First, we didn't put all our emphasis on expanding into the U.S.," Mr. Tamblyn says. For many mid-sized companies of Kobo's size (it has about 350 employees, mostly in Toronto), U.S. expansion is natural, given our language and cultural affinity and – for now at least – our membership in the North American Free Trade Agreement.

"We could see that for e-books, the U.S. was going to be a battleground. It was the home turf of Amazon, Apple, Google, Barnes and Noble – it seemed like everyone was going to focus their resources on winning that one market," Mr. Tamblyn says.

"Instead, we went to every other country where it appeared that e-books had a chance of becoming a significant category. That's what led us into Europe, Australia, New Zealand and Asia. The others' focus on the U.S. gave us a chance to build market share in those other territories."

The choice Kobo made was one of three directions that companies can go when deciding how to compete against e-commerce giants, says Berkeley Warburton, a managing director who leads Advanced Customer Strategy with Accenture Strategy in Canada.

"It comes down to compete or collaborate. … They can either choose to exit the market [such as Kobo] or choose to compete or choose to collaborate." Collaboration can mean joining an ecosystem (such as Amazon) or a platform (such as hotels joining Airbnb Inc.).

In fact, a new Accenture study suggests Canadian companies risk losing customers to digitally savvy brands if they do not invest in customer needs, such as balancing an immediate presence when needed without being too intrusive.

The second key decision that Kobo made was to build all of its technology and back-office operations on the assumption that the company was going to be operating internationally, not just in Canada or North America.

"We can work in multiple currencies and multiple languages," Mr. Tamblyn says. "Our competitors couldn't necessarily turn on a dime and become international competitors; we gained months, sometimes years of breathing room while they struggled."

The third decision Mr. Tamblyn is proud of is that, rather than spend huge amounts of money and resources on expansion into new territories, Kobo partnered with local companies.

"It wasn't very expensive to open up in new countries that way. We just needed a few people with local expertise."

It was also a plus that, unlike its biggest competitors, Kobo is not American.

"Countries in Europe are concerned about U.S. encroachment, and in France it helped that Canada is a member of La francophonie [and bilingual]," Mr. Tamblyn says.

"We discovered that being Canadian helps."

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