Kindle Review – Kindle Fire Review, Kindle 4 Review

The $100 ‘Sorry You didn’t get your Nook for Christmas’ gift certificate has been on my mind. It’s basically B&N making sure people don’t cancel their Nook orders and get the Kindle instead.

Which brings up an interesting question.

What is a Kindle/Nook owner worth to Amazon/B&N?

Let’s consider all the aspects – just substitute the Nook or the Sony Reader instead of the Kindle if that’s your inclination.

We’ll add-in rough estimates of what each benefit is worth.

Buying the Kindle

Let’s say Amazon makes $50 off of every Kindle sold. This is probably optimistic.

That’s the first direct benefit.

Free Marketing and getting Friends and Family to buy the Kindle

Every Kindle owner will talk to friends and family about his/her Kindle, they’ll be seen by people reading on the Kindle, and in general help spread the word.

1. 30 second ads cost around $130K each.
2. Let’s assume each ad reaches a million people.

That’s around 10 cents per person.

In the course of a Kindle owner’s experiences with the Kindle, say 2 years, they’ll probably -

1. Help at least 50 people see it. 
2. 10 people get a strong impression – say worth $1 each.

That’s $5 plus $10 = $15 worth of marketing.

Note that we are not including the profit Amazon would make off of every additional Kindle purchase as that goes into that customer’s value to Amazon.

Buying eBooks from the Kindle Store

Amazon currently makes a loss on some eBooks.

Assuming that overall eBooks tend to make Amazon 50 cents each and the average owner buys 20 a year, that’s $10 a year.

2 year life-time equals $20 (5 year life time would mean $50).

Buying Magazines, Newspapers, etc. from Kindle Store

Let’s be conservative here and assume one subscription a month that earns Amazon $1 a month.

2 year lifetime means $24.

Customer for Life Factor

It’s hard to put a price on this -

1. Kindle owners are more likely to stay Kindle owners.
2. They are more likely to buy eBooks from Amazon.

Just something we’ll keep in mind.

Buying new versions of the Kindle and additional Kindles

Let’s say that -

1. 75% of Kindle owners buy a new Kindle and stick with Amazon and Kindle. That’s $37.50 per Kindle owner on average. 
2. 10% of owners buy an additional Kindle. That’s $5 per Kindle owner on average.

Gifting the Kindle to Friends and Family

Let’s assume that 10% of Kindle owners gift someone else a Kindle during their Kindle life-time. That’s $5 per Kindle owner.

Buying other items from Amazon

This is another wild card, much like the Customer for Life factor, and very difficult to quamtify.

However, it is a tangible benefit.

Relative Advantage – Getting a customer instead of losing a customer

This is important.

Every person who buys a Kindle -

1. Usually doesn’t buy a competing eReader.
2. Adds all the benefits discussed above while not adding them to competing companies.

Let’s say this is worth $10 per Kindle owner – even though it’s probably worth more.

Strength in Numbers

The more Kindle owners there are -

1. The more volume of Kindles made and sold.
2. The lower the production costs per Kindle.
3. The lower the infrastructure and marketing costs per Kindle.
4. The stronger the Kindle’s position as the de-facto eReader.

Let’s say this adds another $5 per Kindle owner.

Kindle owner’s worth to Amazon – Adding up the Numbers

Here are all the benefits we have -

1. Buying the Kindle – $50. 
2. Free Marketing – $15. 
3. Buying eBooks – $20 if 2 year life-time, $50 if 5 year life-time. 
4. Buying subscriptions – $24 if 2 year life-time, $60 if 5 year life-time. 
5. Buying Additional Kindles – $5.
6. Gifting Kindles – $5.
7. Relative Advantage – $10.
8. Strength in Numbers – $5.
9. Customer for Life Factor – Hard to quantify.
10. Buying other items from Amazon – Hard to quantify.

Our total is $134.

If we assume (a big assumption to make) that 75% of Kindle owners buy a new Kindle after 2 to 3 years, and stick with Amazon for content for 5 total years, we get -

1. Buying a new Kindle after a year or two – $37.50 (assuming 75% of Kindle owners do this). 
2. Extra $30 from books and extra $36 from subscriptions. 75% of that is $49.50.

That’s an extra $87 per Kindle owner for a grand total of $221.

Every Kindle owner is worth $221 to Amazon.

Should Amazon have offered a $50 Kindle coupon to everyone? Should they have offered a $100 coupon to people returning Nooks?

Certainly would make sense.

Perhaps, when the Nook delays were first announced, Amazon could have just said -

1. Here’s a $50 kindle coupon for everyone. 
2. Here’s a $100 coupon for people cancelling Nook orders.

Not sure if that are any legal issues in doing this. However, it would work.

Of course, there’s a good argument to be made that the Nook reviews made any offers unnecessary.

Closing Thought – The $100 apology is a smart move by B&N

Every potential Nook owner who gets exasperated by the wait and buys a Kindle earns Amazon $221.

That’s without factoring in the benefits Amazon gets from having that Customer potentially becoming a life-time customer and buying other things from Amazon.

It wouldn’t be an exaggeration to say that B&N themselves stand to earn over $200 from every Nook owner.

$100 is a small price to pay to save B&N the $200 they would earn and, at the same time, prevent Amazon from benefiting to the tune of $221.

Filed under: kindle Tagged: | kindle owner, kindle owner worth