While we wait for a possible Kindle 3 and Wall Street punishes Amazon’s stock price because Amazon is investing in its future it’s worth taking a moment to look at how all the early investment Amazon put into the Kindle and all the strategic moves it has been making are quickly giving Kindle an insurmountable lead.
All the early Kindle investment has paid off
Let’s put aside future forecasts and the monthly ‘Kindle is going to die’ articles and look at the market reality -
- Kindle Store has approximately 80% ebook market share. That’s a ridiculously high percentage.
- Kindle is the best-selling eReader and the ‘sales growth rate has tripled’ price-cut will lead to even more sales.
- Kindle Apps are doing pretty well. In the App Store Kindle for iPhone is second only to Apple’s own iBooks and while we don’t have numbers anecdotal evidence points to good performances by other Kindle Apps.
- Kindle DX 2 has the most advanced eInk screen currently on the market. It’s also the only 9.7″ eInk screen Big 3 eReader (Big 3 being Kindle, Nook, and Sony Reader).
- Kindle Store is getting some pretty important exclusive content deals.
At the moment the Kindle and the Kindle Store are both doing excellently. The Press and anti-reading people can spin things as much as they like – However, they cannot dispute that the eReader and eBook markets have been validated and that Amazon dominates both.
The iPad has forced Amazon to improve the Kindle and the Kindle value proposition
Since the arrival of the iPad we haven’t seen anything except good developments for Kindle and Nook – the Kindle 2.5 upgrade, lower prices, higher sales, higher ebook sales. The most important contribution of the iPad has been to force eReader makers to quickly improve their eReader and eBook Store offerings – Kindle Store now offers authors a 70% cut of ebook sales, the new eInk screen Kindle DX 2 has appeared, Nook WiFi has appeared, and prices on refurbished Kindles have gone as low as $109.
While this is probably hurting the margins on eReaders it is also increasing the number of Kindle and Nook owners and will in turn increase the number of ebook sales and the market share of ebooks.
If any company can afford to lose money for a bit its Amazon (well, Apple and Microsoft and Google can too – However, Amazon is among this select group of companies that can afford to invest heavily for the future). Barnes & Noble, on the other hand, cannot afford to lose money. Basically, what the iPad might be doing is hastening Barnes & Noble’s destruction by forcing it to cut margins on the Nook.
By focusing on investments in the last quarter Amazon has shown that it doesn’t really care much about Wall Street’s myopic view of profitability. It will continue to invest in the Kindle and it’s worth noting that despite heavy investments it had $200 million in profits last quarter so it really has little to worry about. B&N has been struggling and it might not be able to keep up in an eReader price war much longer.
The iPad has been a catalyst for rapid Kindle improvements. In terms of reading, though this may be hard to stomach for Apple people, this might be its most significant contribution.
Reports of the death of dedicated eReaders are an exaggeration
We now have multiple data points that prove eReaders are not dead or dying – AT&T saying some part of 900,000 new activations were Kindles and Nooks, Amazon tripling the growth rate of Kindles sales with the new $189 price point.
There are also increasing instances of people writing about how they realized the iPad isn’t as suited for reading or that the Kindle and iPad are complementary.
There are always unintended consequences and Apple pretending the iPad is an eReader has actually caused a lot of people to start looking at Kindle and Nook more. It makes sense since only 10% or 15% of people were aware of eReaders – However, all the Apple loving people have been writing iPad vs Kindle articles and people are suddenly aware and curious (misinformed but curious).
For eReaders it really does seem that what doesn’t kill you makes you stronger.
Existing Kindle Owners are the most valuable customers
A point that no one ever makes is that a large part of the most valuable readers (in terms of buying books, influencing others, etc.) are already Kindle owners. They will only leave if a device offers a much better reading experience and a much better book buying experience.
It’s not enough to make a great device that also does books decently. It’s not enough to make a device that offers a better reading experience than the Kindle. Companies have to make a device that beats the Kindle on both reading experience and book buying experience.
Add in that Kindle owners’ ebook libraries are locked into Amazon and they are far less likely to leave. Even if they do leave they are likely to continue to use a Kindle App.
Even if all the people claiming that serious readers are buying iPads are correct (and it’s rather unlikely) it’s hard to believe that all these serious readers are satisfied with the 30,000 books available in the iBooks store. Whatever serious readers we have buying iPads are using Kindle for iPad – once they do they are locked into the Kindle library.
Basically, all the super valuable dedicated readers that have left physical books are on the Kindle or using Kindle Apps or using the Nook. Perhaps 2% or 3% are getting by on the super limited selection of iBooks – However, how serious could you be if a limited set of 30,000 new books meets all your reading needs?
Early lead includes Content
When we look at things like Kindle Store having more new books than any other store and exclusive deals like the one with Andrew Wylie that’s an early lead too. As is having access to ebooks internationally – something Nook is missing and Apple has hardly any of.
The Kindle Store has a huge lead in content. Google Editions might match it on content – However, for the moment the Kindle is what you get if you want the widest selection of books.
It takes years to get Publishers on board and you have to do it country by country. It’s a royal mess and it’s going to be even tougher given how much Publishers worry about ebooks now.
Early lead includes Infrastructure
Any entrant into the eReader and eBook market has to look at the Kindle ecosystem and wonder how they are going to match it -
- Free Store Browsing and 60 second book downloads.
- Free Internet Browsing.
- Free Store Browsing and Free Internet in 100+ countries (for US customers).
- Syncing of Notes and Highlights and Last Page Read.
- Kindle Apps for loads of platforms.
It takes time to build all of this. You might not be able to get the same deals on data as Amazon did. Who knows how many negotiations were involved before Amazon decided to go with AT&T internationally?
There’s a lot of time and money and effort involved in building up all this infrastructure and you might still lose out because Amazon is improving its infrastructure too.
You either have to outpace Amazon or hope Amazon makes big mistakes
The problem with trying to catch up with the early leader is that its improving too. It’s not just enough to get a better screen – because Kindle will come out with the eInk Pearl screen and then a color eInk screen. It’s not just enough to beat them on software - because a massive update like Kindle 2.5 might arrive.
The other option is to make a truly gigantic leap like sign an exclusive with Qualcomm for Mirasol screens. However, how are you going to guarantee enough sales to let Qualcomm scale-up? Amazon, B&N, and Sony Reader are the only three eReader companies that could make such a proposition and Amazon’s would be the strongest.
That leaves the option of hoping Amazon makes mistakes or forcing Amazon into a mistake.
Apple is going for the latter. They are trying to make Amazon give up on dedicated eReaders and fight on Tablets and multi-purpose devices. Amazon are unlikely to fall for the bait because they’ve seen success with the Kindle. At the moment the notion that multi-purpose devices will kill dedicated eReaders is just a construct – It’s been drilled into our heads since the Kindle first came out. The fact that millions of Kindles have been sold suggests that it wasn’t true.
Why would we believe that it’s now suddenly valid?
There aren’t very many companies shrewd enough to force Amazon into a mistake and Amazon has done an exceptional job of keeping the real monsters out of eReaders and eBooks for so long. Amazon’s secrecy with Kindle sales figures ensures that a lot of monsters will not enter eReaders or eBooks anytime soon. Apple and Google are the only super dangerous companies that have shown interest and Google isn’t making a dedicated eReader and Apple is simply pretending the iPad is an eReader. That isn’t really competition.
The only competition for Kindle is Nook, Sony Reader, and the notion that eReaders aren’t needed
Nook isn’t as big of a threat as it could be because B&N just isn’t strong enough financially to compete. If you’re struggling to make profits you can’t compete with a company that has billions in cash and hundreds of millions of dollars in quarterly profits.
Sony wants to make an eReader and let other people do the dirty work of providing lots of books at good prices and providing wireless delivery. Sony is too lazy to provide an end to end solution and it leaves the Sony Reader out of the equation.
Apple isn’t really making an eReader. It’s trying to capture readers with the lure of ‘buy something that does more than just read’. It’s a marketing war and not really a device war. However, those people aren’t that crucial because they aren’t going to read as much as they would on a dedicated eReader. Lots of people are happy because they read 1 book a week on their multi-purpose device – However, with a dedicated eReader they would double or triple how much they read and there are lots of Kindle owners who do read lots of books every week.
Google isn’t making an eReader. There’s nothing else to write yet because at this stage we have no idea what twist Google Editions will introduce.
We’re basically left with the Kindle, its early lead, and its lack of competition when it comes to reading and readers. There aren’t really that many companies committed to reading. It’s an easy test -
Are you committed enough to produce a dedicated reading device?
If you’re not then how are you going to beat a company that focuses on producing dedicated reading devices?
Lots of people expect Kindle to die or get beaten when the truth is that the Nook is the only other runner in the race and it doesn’t have the financial backing to keep competing.
Filed under: kindle Tagged: | first mover advantage, kindle future
