WSJ’s MarketBeat Blog covers the dire prediction from Credit Suisse analyst Spencer Wang that Kindle’s share of eBooks is going to plummet from 90% to 35% in the next 5 years.
Here’s the relevant part –
Near term, we suspect that the iPad and the new eBook agency pricing model, which requires that Amazon increase retail prices to be more consistent with Apple’s pricing, will provide Kindle with the most market share headwind.
Going forward, we can envision a scenario where Apple, Amazon, and Google eventually split the market.
Therefore, we expect Amazon’s share of eBooks business to fall from 90% currently to about 35% over the next five years.
Keep in mind that the 90% estimate is based on some rumors sourced from Publishing insiders.
The article drums up fears that the iPad and a GooglePad and Google’s eBook Store will all cut into Amazon’s share drastically.
Is Mr. Wang right – Are Amazon going to lose 55% of the total eBook market?
Let’s consider the four main channels for the sale of eBooks –
- Amazon’s Kindle Store.
- Apple channels – iPhone and iPad.
- Google channels – Google Editions etc.
- Everyone Else.
If we believe the rumors that Amazon has 90% of the market then it’s probably because –
- The Kindle Store is doing well and Kindles are selling well.
- Amazon is doing very well on the iPhone due to Kindle for iPhone and Stanza.
- There is no Google Channel.
- Everyone else isn’t doing well – neither the eBook Stores, nor the eReaders.
For Amazon to fall from 90% to 35% market share we would need –
- Kindle sales to fall drastically. A small fall would not work as Kindles would still be in the majority. The other thing that could go wrong is someone sabotages sales from the Kindle itself – that’s highly unlikely as Amazon pretty much controls the channel.
- Kindle for iPhone to completely fall off the charts, Stanza to fail, and Kindle for iPad to fail to take off.
- Google’s channel to do very well.
- eReaders from other companies to do very well.
The probability that all of the above 4 happen is extremely low. In fact even 3 of the above 4 happening is pretty unlikely.
Not only do competitors have to beat the Kindle, they have to beat it across multiple channels and they have to make up for the Kindle’s early lead and loyal customer base.
The two main channels – eReaders and ‘Devices that also read’
There’s a very easy way to break up the ebook market – dedicated reading devices and devices that let you read.
With dedicated reading devices it’s worth keeping in mind – dedicated readers will choose dedicated reading devices, even if they are just 20% of the devices used for reading they’ll account for 80% of ebook sales, the Kindle has a huge lead in this market (including customers of good intent), the Kindle is constantly improving, and the winner of this market will almost certainly win the eBook war.
With devices that let you read – owners of these devices do not read as much, these devices will have dozens of things competing with reading, Amazon can still build channels on most of these devices, Amazon already owns most of the iPhone channel, the successful apps and companies in this channel can be bought (except Google and Apple).
No matter how you interpret it Amazon is the leader in the two main channels for eBooks.
How could Amazon be beaten?
In the main channel of dedicated reading devices there is no way other than to create a reading solution that is at least as good as the Kindle in both device and books. In addition to this a competitor has to be significantly better than the Kindle in either the device or the book store.
It’s a very tall order. People are trivializing it because they don’t understand just how many advantages Amazon has.
In the secondary channel of multi-purpose devices companies have to create (or let in) a better solution than Amazon and then make sure Amazon doesn’t buy it. They could also lock out Amazon – However, that would raise anti-trust concerns and Apple would stay away from it.
The fact that Kindle for iPhone and Stanza are two of the top 3 iPhone readers demonstrates that attacking Amazon isn’t easy in the secondary channel either.
Basically, Amazon are in a sweet, sweet spot. There’s always the threat of Google handing out books for free and Apple locking out Amazon – However, those are edge cases that are unlikely to happen.
The actual range of possibilities
Amazon will probably have as much as 80% of the eBooks market and at least 50% of the eBooks market in 5 years.
80% is much likelier than 50%.
It’s an analyst’s job to envision drastic drops of 90% to 35%. It’s too bad Mr. Wang didn’t factor in that Amazon also leads in the iPhone channel and that the existing Amazon customer base matters a lot – especially as it is locked in to the Kindle format.