Kindle Review – Kindle Fire Review, Kindle 4 Review

There was a very interesting article in Forbes last week speculating about Amazon’s plans to leverage the Kindle to create a billion dollar eBook business.

The Forbes Kindle article pointed out a few things that would help Amazon sell more Kindle Books -

1. The price-cut on the Kindle. Since then we’ve also gotten the new Kindle DX 2 at a lower price of $379. So Forbes are spot-on that Amazon will probably be selling a lot more Kindles and as a consequence a lot more Kindle ebooks.
2. Kindle Apps on various platforms. Another valid point as having apps on most of the major phone platforms and on the PC, Mac, and iPad give Amazon a lot more channels to sell Kindle books.  
3. The larger inventory of the Kindle Store.  

It then went on to predict that Amazon could earn $800 million from ebook sales in 2010.

Predicting Kindle Book Sales in 2010

Here are their assumptions (based on research done by Foner Books in June 2009) for ebook sales via Kindles -

• 24 eBooks sold per Kindle per year. Not a bad assumption though you have to wonder – especially since we are only considering ebooks sold from the Kindle Store. A safer assumption would be 12 to 24 $9.99 books (let’s say 1.5 per month) and 36 to 48 $1 books (let’s say 3.5 per month).
• 3 million Kindles in use in 2010. Not a bad assumption either - although taking a figure higher than the estimated sales by end 2009 would be good. In my opinion using a figure like 4 or 5 million would work better (let’s use 4.5 million).
• Average selling price to be $12 per eBook. This is where they are being overly optimistic. We really should consider that there will be more sales of the cheaper books.

Forbes estimates $864 million in ebook sales revenue for Amazon in 2010 (just from Kindles). Our estimates are $809 million from $9.99 books and an additional 189 million from $1 books for a grand total of $998 million (what a remarkably convenient number).  

They also guessed that ebook sales from Kindle Apps might be $1.2 billion a year – That piece of guesswork is quite a stretch as they assumed an average of 1 book bought per Kindle App per year and that 100 million people would download the Kindle App to one or more of their devices.

Let’s go with a much more conservative (and probably more realistic) prediction for Kindle eBook sales from iPhones, Android phones, PCs, Macs, and iPads -

1. Let’s say 5 million Kindle App users across iPhone, Blackberry, Android, and iPad. Each of them buy 2 books a year at $9.99 and an additional 2 books a year at $1. That’s $109.9 million in 2010.
2. Let’s say 2 million Kindle App users across PC and Mac. Each of them buy 1 book a year at $9.99 and 1 book a year at $1. That’s $21.98 million in 2010.

We’re being a little conservative here – These numbers might go up drastically as more people start reading on their phones and their PCs. They will also probably go up more as people realize that the Kindle Store has far more choice than other ebook stores. The conservative estimate gives us an additional $131.88 million.

Our grand total estimate for Kindle Book sales in 2010 comes to $1.129 billion. Amazon probably already has a billion dollar ebook business.

While that number is impressive there’s another number that’s far more impressive.

$23.8 billion a year in US Book Sales – Wondering if it’ll survive

The US Book Market generates $23.8 billion a year in book sales revenue. That’s an astounding number and it makes you realize the upside for Amazon’s Kindle platform. $23.8 billion a year also explains why Apple want to pretend the iPad is an ebook reader and why Google want so badly to get into selling books.

We’re impressed by the fact that Kindle Book sales might be $1.129 billion in 2010 and that’s still only 4.7% of the total.

When we try to expand the share of ebooks beyond this 4.7% figure we run into a few very interesting problems -

1. Straight off we know that we have lower priced ebooks. We get a lot of $1 ebooks, lots of ebooks between $1 and $10, a smaller number of $12.99 ebooks, and a very small number of $14.99 books. Contrast that with physical books which are usually priced higher.
2. We also have to factor in that there are a ton of very cheap books and free public domain books that are eating up time that readers might otherwise devote to $6 paperbacks and $12 hardcovers or even $7 ebooks. With physical books readers were paying $4, $6, or $8 for the same books that in ebook format they can read for free or for a dollar.
3. There’s an assumption that higher sales volume will make up for lower ebook prices. However, we don’t know for a fact that sales will be higher – People might not buy more books, people are rather unlikely to find more time for reading, and it’s not like they’ll suddenly start reading much faster. Plus there’s the whole Greater Depression to consider.
4. There will be a lot more piracy. There’s no way around it – Earlier if people wanted to read a book they had to buy it. Now, they can buy it or they can rationalize stealing it. Some will choose the latter.
5. We’re just getting started. We’re seeing low prices and brutal competition and this is the very beginning. What’s going to happen when the stakes are higher for both authors/publishers and eBook Stores/Platforms.

My guess is that we’ll see three stages of destruction of the $23.8 billion books business. If at any point a company gains overwhelming market share and control they’ll halt the slide. However, it’s much likelier that we progress through these three stages of destruction steadily and painfully.

Three Stages of Destruction – Bidding Farewell to $23.8 Billion

As a reference point we’re looking at a $23.8 billion books business (as of 2008) that’ll probably morph into a $21 billion physical books business and a $1.5 billion ebooks business (by end 2010). From there we’ll see three progressively worse stages –  

1. eBooks hit 25% share and competition gets brutal. The market leader (probably still Amazon) will see their ebook revenue explode from $1.129 billion to $5.645 billion. Imagine that – Over $5 billion just from ebook sales. At this stage a lot of companies like Apple and Google will feel it’s worth it to steal this market – Even if it involves blowing up the market and reducing it from $5.645 billion to $2 or $3 billion.
2. eBooks hit 40% share and revenue and profits fall off a cliff. If Amazon lose their dominant position and we get lots of competition we’ll definitely see this happen. Book sales will be 60% of the $23.8 billion ($14.28 billion) and the remaining 40% ($9.52 billion) will be ebooks – Except that the brutal competition and lower prices will morph that $9.52 billion into a much smaller $4.75 billion (roughly half). Yes, we’re claiming that ebook sales revenue when ebooks have 40% market share will be much less than at 25% market share – If you think about it it makes a lot of sense. Companies will feel it’s OK to blow up half of the $9.52 billion that shifts to ebooks IF it ensures that the remaining half goes to their pocket.
3. eBooks hit 60% and revenue and profits are decimated. This will happen if we continue to see lots of competition. Book sales will be just $9.52 billion and be relatively protected. However, the 60% that is ebook sales will not be $14.28 billion. It would have shrunk to just $4 or $5 billion. It’ll be the result of the same destructive, self-centered tendencies - A company would rather that $4 billion goes into their pockets and $10.28 billion disappears than let another company get the money. At this stage 43.2% of the $23.8 billion book sales revenue would have disappeared – destroyed by the brutal competition in eBooks and eReaders.

If a company gets overwhelming market share at any point during the process it might be able to stall the decline of book sales revenue. However, it’s not a given since there will be infinite competition – Local bookstores want to sell ebooks, any random website can start selling ebooks, every company is getting into eReaders. We basically have a giant mess on our hands - The Tragedy of the Commons at its finest.

Ask any company – Do you want to blow up $10.28 billion of book sales?

They’ll shudder at the thought. However, ask them a different question -

Do you want to get $5 billion a year? All you have to do is blow up $10.28 billion of book sales. Will you do it?

They’ll agree in a heartbeat.

That’s what it comes down to – Taking that $23.8 billion a year in book sales revenue and carving out a piece of it. Companies will do anything for a piece - including blowing up most of the $23.8 billion.

Filed under: kindle Tagged: | kindle book sales, sales estimates