Kindle Review – Kindle Fire Review, Kindle 4 Review

While the 25% jump in Amazon’s stock price (fuelled by a 69% rise in profits and the Kindle) makes things seem really great, Amazon has a rather tough road ahead.

The Kindle plays an absolutely vital role – one that very few people fully see, and that’s what this post will discuss. 

Henry Blodget at Silicon Alley Investor points out the obvious -

In any event, I’m quietly raising a glass to the brilliant Jeff Bezos & Co. for building one of the most enduring franchises of the early Internet years. 

And I’m hoping the company can navigate the next challenge: The collapse of physical media sales that constitute half the business

Why is that Important?

Media makes up the Lion’s Share of Amazon’s revenue, and it’s not exploding.

$2.9 billion of Amazon’s $5.45 billion Q3 revenue was Media. That’s 53.7%.

While Electronics sales have been increasing year over year at a very healthy rate -

1. North America: 30% to 50% for the last 5 quarters (year over year).
2. Worldwide: 36% to 45% for the last 5 quarters (year over year).

Media sales are a different story -

1. North America – 15%, 8%, 9%, 0%, and in the last quarter a jump to 14%. Makes you wonder whether Kindle reversed the trend.  
2. Worldwide – 17%, 15%, 13%, 7%, 18%.

A lot of the jump in Amazon’s stock price is the fact that suddenly 54% of its revenue (Media) jumped from 0% year over year to a 14% increase.

In addition to being dependent on Media, Amazon does not have vast reserves to cope if Media disappers.

Amazon Cash Reserves pale in comparison to Apple and Google

Let’s first take a look at revenues and profits (using last quarter’s earnings) -

1. Microsoft – $3.57 billion profits on $12.92 billion revenue (excluding $1.47 billion deferred revenue).
2. Apple – $1.67 billion profits on $9.87 billion revenue.
3. Google - $1.64 billion profits on $5.94 billion revenue.
4. Amazon – $199 million profits on $5.45 billion sales.

Next, at Current Assets and Total Assets -

1. Microsoft – Total Current Assets of $52.2 billion. Total Assets of $81.6 billion. 
2. Apple – Total Current Assets: $36.36 billion. Total Assets of $53.85 billion. 
3. Google – Total Current Assets of $20.18 billion. Total Assets of $31.7 billion. 
4. Amazon – Total Current Assets of $6.37 billion. Total Assets of $8.9 billion.

It’s unfair to compare Amazon with 3 of the most profitable companies ever. However, Google is already jumping into books and Apple is likely to.

When we consider the role of the Kindle it’ll be useful to keep in mind that Amazon’s rivals have considerably larger reserves.

Which brings us to why the Kindle is vital

Here are a few things the Kindle does -

Preserve Media Sales 

The Kindle replaces the sale of physical books with the sale of ebooks – ebooks Amazon sells.

1. It’s very likely that the Kindle is the reason Media Sales went from a 0% increase in Q2 to a 14% increase in Q3.  
2. It also forms a basis for selling other digital media down the line.  

Direct Channel to Customers

People refuse to see the power of having Kindle owners, Kindle for iPhone users, and soon Kindle for PC owners. It’s a direct channel to customers.

1. You don’t have to pay for advertising. Just as the Kindle became a huge success off of just Amazon.com ads, you can use the Kindle to sell other stuff.  
2. It’s a channel you control. You don’t have to pay Google $.50 for kindle related searches, and you don’t have to compete with links to Google Books.  

Customer Relationship

A huge part of the success of the Kindle is Amazon’s great reputation with its customers.

The Kindle helps add to that. You can think of it in terms of Committment and Consistency or simply trust. However you define it, it’s a powerful thing.

1. Every single Kindle for iPhone customer is likelier to choose Kindle when they buy an eReader.
2. Every Kindle owner is likelier to choose Amazon when buying books (plus its easier).

A Defence against Competitors

Amazon doesn’t have the margins that Google has -

Google - $1.64 billion profits on $5.94 billion revenue.

Amazon – $199 million profits on $5.45 billion sales.

It doesn’t have $53 billion in assets like Apple does.

Both Google and Apple can afford to lose a lot of money for a lot of years. They will if they feel Books are profitable enough in the long-term.

With the Kindle, Amazon has a defence.

All the talk of Openness leaves out the tiny detail that the Kindle is how Amazon can – perhaps – save itself from Google discounting everything and Apple pumping $5 billion into its iReader strategy.

The Kindle is Amazon’s Knight in Shining White Plastic

Henry Blodget is mistaken when he hopes Amazon can navigate the next big challenge.

They already are. The Kindle is how Amazon is saving its Media Business.

Something that people miss is Mr. Bezos and Lab 126 are very far ahead of everyone else in building a reasonable solution i.e.

1. The Kindle as eReader and Delivery Channel. 
2. The Kindle as Platform.
3. Helping Customers with $9.99 prices and features like Read To Me and Free Internet. 
4. Helping Publishers (although they are too blind to see it fully) by eliminating used books and getting people to read more.

The Kindle is both Amazon fighting for its survival and Amazon switching from online retailer to being the platform for books and publishing.

Filed under: thoughts Tagged: | kindle amazon, kindle future