Have electronic books finally gotten respect? Until recently it seemed e-books were a bad idea. But then in March, Stephan King's 66-page electronic novella "Riding the Bullet" flew off the servers with over 400,000 copies downloaded the first day.

True, Stephan King isn't an ordinary author, and giving away his novella for free isn't exactly a great indication of the viability of electronic books. Nonetheless, some say this is proof there is a market for electronic publishing, and e-books in particular.

Barnes & Noble (BKS) is a big believer. They now have a section devoted to e-books and Stephan Riggio, the Vice Chairman and Acting Chief Executive Officer of barnesandnoble.com (BNBN) believes the e-book revenue stream will be much larger than for MP3 music.

Apparently companies like Softbook Press and Nuvomedia (divisions of Gemstar International (GMST)) agree, and now even Microsoft (MSFT) is pushing its ClearType technology for reading on handheld devices like e-books.

Everyone seems to be focused on improving font clarity on screen, providing a good selection of reading material, making the technology easy to use, and of course making the technology affordable.

But I'm not convinced that e-books will be more than a small niche technology for a very long time. I think they're all missing a key point.

What's Wrong with E-Books?

First, are e-books better than traditional books? Yes, to some extent. The e-book allows you to download and carry lots of books, search for words and change text format. You get features like bookmarks and backlighting for reading in bed and all sorts of things.

But a long history of research on new products shows consumers resist buying products, even if they have marginal benefits because they lack compatibility. I'm not talking about technical compatibility – technologically oriented firms seem to understand this well – but compatibility with consumers past experiences and values.

For example, books possess aesthetic and tactile qualities, they are often used as status symbols and displayed in personal libraries. Their well-worn nature often makes them personally (if not financially) valuable, and most importantly, people learn to read traditional books and do so throughout their school years. As a result, people often treasure books. To be very successful, e-books must override these potentially deeply held experiences (will people ever treasure an e-book?). I don't think they can.

E-books are also incompatible with the ways people tend to use their leisure time. True, people do spend time surfing the net, but I'm not convinced they read long articles on the net for relaxation. Why? I think most people would say it's too difficult.

Look at the way this page is structured, for example. A newspaper, magazine, or book can have long paragraphs. But on the net it's easier for you to read this short essay using very short paragraphs. Will authors have to write novels using short paragraphs? Would you really give up your books and magazines to read them on an electronic screen?

Never underestimate the power of compatibility on people's acceptance of new products. Financial software didn't take off until firms like Intuit (INTU) made the screen look like a checkbook. Research indicates that the slow adoption of computers by business was due to their lack of incompatibility with corporate culture.

If publishing firms look at music and MP3s as a good analogy for their industry on the web, they're wrong. In contrast to e-books, transistor radios, Walkmans, and car radios provide consumers with a long set of experiences that are readily compatible with MP3 players.

Now, you might ask if compatibility is such a big issue, then why did so many people download Kings' novella? Didn't they read it on their computers or e-books? I suspect that after downloading it, they printed it off to read it – that is more compatible.

The Niche Markets

I've heard people say that the e-book is a great product for students. After all, they won't have to carry around a bunch of books. Perhaps, but I'm not optimistic.

Consider this. I have a web site for my university MBA class on which all of the assigned articles are available for students to easily read online. But what feature have my students demanded the most? The feature to provide a "printer friendly version".

Why? Because they're used to marking up the papers, rearranging, tearing, stapling, and all the other things they've been doing throughout their educational years.

Recently I spoke with Microsoft researchers about this issue of compatibility. Their position was that while this may be true, younger kids will grow up reading books online and will easily adopt this new way of reading. Maybe.

But my kids, aged 6 and 8 and quite typical, show no evidence of this in their schools. They read books and hold and treasure them as people have throughout time. Also, schools don't have enough money for computers, let alone e-books.

Now, remember, I said this would be a niche item, and probably there are limited contexts for the e-book. But for the general market, and in particular as a successful phenomenon like MP3 music, I just don't see it.

If I'm wrong, and e-books are very successful, then the publishing world will find similarities to the music industry. Publishers like Simon and Shuster may eventually cut out booksellers like Barnes and Noble and go directly to consumers. Writers will go directly to consumers. And if the devices are connected to the net, maybe even a Napster or Gnutella type software will appear to let consumers trade novels and magazines for free.

In any event, if e-books take off I'm going to invest in companies that make paper and printers, because consumers will be doing a lot of printing of these e-books.