Kindle Reading Apps – Dangerous Strategy for Kindle in the long-term

If we consider the various Kindle Reading Apps from Amazon’s perspective, they seem too good to be true -

  1. Spend a few hundred thousand dollars each on making reading apps for iPhone, Android, iPad, PC, Mac, Blackberry, and Windows 8.
  2. Get millions of customers each month.
  3. These millions of customer buy books from you each month.

Money for nothing (Dire Straits would approve).

However, there are a few big hidden caveats. Let’s start with the first.

Kindle Reading Apps can never be as Valuable as an actual Kindle or an actual Kindle Fire HD

Kindle Fire HD and Kindle Paperwhite offer a few advantages that Kindle Reading Apps don’t -

  1. Exclusivity – The only reading app on these devices is Kindle. Note: Yes, you can sideload. No, most people won’t sideload a different reading app.
  2. Power of the Default – The DEFAULT is the Kindle Reading App. This is a very big deal. Depending on what survey/set of statistics you read, between 50% to 89% of people never ever change their default settings.
  3. Optimization – You can tweak and optimize the reading app and the device to provide a GREAT Reading Experience. You obviously can’t tweak the hardware of an iPhone or a Blackberry if all you have is a software reading app.
  4. Integrated Store – Apple sets its rules where either Kindle and Nook pay Apple 30% or they remove the store from their Reading Apps. Kindle Paperwhite and Kindle Fire HD allow the store to be integrated with the reading experience. Note: It’s well and good to say – Users can just go buy from the browser. However, the truth is that users want convenience – they want the store built-in.
  5. Sell Other Things – Amazon and B&N both sell movies to Kindle Fire HD and Nook HD owners. With a reading app, they can’t really do that. Yes, they can release a separate app – But then things aren’t easy or smooth. Again, the power of the default kicks in.
  6. Visibility – Tap ‘Books’ on a Kindle Fire HD and it starts the in-built Kindle Reading App. What better visibility could there be? There are numerous things like ‘Recommendations’ and ‘Sponsored Ads’ that promote the in-built Reading App and the Kindle Book Store.
  7. Subtle Lock-In of Users – There are various types of lock-in and one type is having the user used to the device and to the reading app. Familiarity. With your own device you can increase this cognitive lock-in.

There are other advantages too. Hopefully these 7 advantages illustrate why owning the Device, in addition to the Reading App, is a big competitive advantage.

The second big caveat is that with a Reading App you’re building a Castle on someone else’s property.

Building Castles on Other People’s Property is a Bad Idea

You decide to build a castle on someone else’s property. Then you start a business of running tours in the castle. Money for nothing – right?

Well, not really.

Let’s look at the obvious risks -

  1. You can get taxed. The property owners (App Store owners) can start charging you money. There are lots of examples of App Stores that didn’t charge money and then later changes the rules. Facebook used to give developers 100% of earnings. Now it’s 70%. Apple used to allow free in-app buying of books. Now there’s a 30% tax.
  2. You can have your castle broken down. You get up one fine morning and the land owners claim you broke the terms of the original agreement and they’ve broken down your castle. All your hard work and blood and sweat – Gone!
  3. You can have your castle hidden. The owners of the land might realize there’s a lot of money and they might build their own castle right in front of yours. Users can’t even see your castle any more. Note: With App Stores this is absolutely terrible. It’s as if your castle no longer exists. At least with something physical, it’s there for people to see. With a virtual thing, such as an app or a game, it just vanishes.
  4. You can have your customers rerouted. Let’s say you build up a big business and have lots of customers arriving, on someone else’s property, to see your Castle. That someone else can set up businesses and other amusements that route your customers elsewhere. This isn’t an issue until you realize that you’re spending money attracting people to the castle but they’re ending up spending their money elsewhere.
  5. You can have your castle taken over. This is perhaps the worst case scenario. You have your customers and your castle and all your investment taken over by the land owners. You find out that the property rules in that part of the world say that if the castle is on their land, it’s theirs. Should have read the fine print.
  6. The land owners might make a mistake and drive traffic away. Perhaps they loan out part of their land to a nudist colony and families stop visiting your castle. Perhaps they erect a graveyard right across the road from your castle.
  7. The land owners might not take proper care of the land and a natural disaster might cause huge damage to your castle. Keep in mind that not just your mistakes, but mistakes on the part of the land owners could kill your business. There are two big ways in which things can go wrong, instead of one.

The truth is that when you build a business on someone else’s land (app store, website, device) – You’re doing free Research & Development for them. You’re staking your future on their future. You’re leaving the future of your business in their hands.

Chances are, sooner or later, this will come back to bite you.

The third big caveat is that human nature won’t allow the land owners/store owner to let you succeed freely.

Your Castle doing too well means the Land Owners want the Lion’s Share of the Profits

Think of it from the perspective of the Land Owners – They were so generous and let you build a castle on their land. Then they watched in shock as you started doing better than them. They just want to make things right and get most of the profits.

The ideal situation for the Land Owner is what Apple has with the App Store -

  1. Lifetime Amount Paid out to App Makers – $12 billion.
  2. Lifetime Profits for App Makers as a Group – Negative Profits i.e. Losses. Note: If you were to average out the costs of the 700,000 or 800,000 apps in the store, even if you assume just $20,000 spent per app made, that’s $14 billion. Now factor in marketing costs, costs to do updates, costs to service customers. We will easily reach $20 billion in costs.
  3. Monthly Profits for Apple from selling $500 Phones and Tablets that come with super cheap $1 and Free Software – $3 billion a month.

That’s what makes App Store owners and Land Owners happy – Look at all these app makers toiling away for Negative Total Profits (with the most profitable 2-4 making $50 million a month) while we make $3 billion a month in profits.

That’s the role the land owner envisions for you when they let you build a Castle – You are helping drive people to their lands and properties and making them money.

If the situation reverses (for example with Zynga and Facebook, at the time Zynga was riding high), then the Land Owners (they are human after all) get jealous and spiteful. They do things to steal your success and/or kill it -

  1. Route users to someone else’s castle, or to the land owners’ own castle.
  2. Divide and Conquer. Split up your customer stream between you and three-four other competitors.
  3. Kill you by taking away your advantages. What Facebook did with Zynga - Zynga got killed because Facebook just nullified Zynga’s advantages and built up other developers instead.
  4. Tax you and make your venture unprofitable or far less profitable.
  5. Hide you so you get far fewer visitors. This can be done in lots and lots of subtle ways.
  6. Close down the Lands. If you’re making millions in profits while they make nothing, they might just close down everything.
  7. Sabotage you in subtle and not-so-subtle ways.

For every example of an App Store or Device that’s happy to see other companies make more profits than the device/store owners themselves, there are ten examples where the app store owner/device owner moves swiftly and decisively to close things down and/or to reroute the lion’s share of the profits to themselves.

It’s like Vegas – The House Always Wins!

If Apple iBooks has 20% Market Share, that means Apple will close down Kindle Reading Apps sooner or later

This is how it works -

  1. You allow the Reading Apps in. So that customers buy your device.
  2. You tax the Reading Apps and/or add subtle changes so that the experience of reading books and buying books becomes better with iBooks.
  3. When you feel you have enough momentum and lock-in, you kick out other reading apps and shift everyone to your reading app.

What was the role that Kindle and Nook Reading Apps played? Getting people to your ecosystem.

How long are they needed? Only for as long as it takes until users get attached/locked-in to your ecosystem.

Apple and B&N are thinking – Wow! We’re getting customers for free who are buying books from us and making us $2 to $4 per book.

Apple is thinking – Wow! We’re getting customers who would have chosen another device. They are making us $200 to $400 per device. Once we have enough customers, we’ll do a calculation and if the money from books is more than from additional device sales due to Kindle and Nook Apps, we’ll kick them out.

As we sell more and more devices, the inflection point gets nearer and nearer. Apple and Google are going to teach Amazon a harsh lesson in the rewards of building Castles on other people’s Properties.

Are Kindle Lending Library and Indie Author Exclusives killing Kindle Book Prices?

Kindle Owners’ Lending Library

Amazon has something called the Kindle Owners’ Lending Library.

Basically, Kindle owners who are also members of Amazon Prime can ‘borrow’ one book a month.

There are some interesting nuances -

  1. There are 300,000 books that are part of the Kindle Owners’ Lending Library.
  2. All 7 Harry Potter Titles are available.
  3. Over 100 current and former New York Times bestsellers are available.

If you notice the figures, it’s 100+7 versus 300,000. The first question that comes up is – How many of those 300,000 books are books you’ll actually want to read?

I don’t know the answer to that question. But it’s definitely a lot less than 300,000. Some of the ones that you might want to borrow include -

  1. The Harry Potter titles.
  2. The Hunger Games titles.
  3. Most/Some of the books published by Amazon’s various Publishing imprints.
  4. Some of the books Amazon got Kindle exclusives for (including some titles from John Lutz and Philip Roth).
  5. A few big name authors like Michael Lewis and Stephen Covey.

Overall, the number of books you find interesting might run in the few hundred to few thousand range. Of course, you’re limited to one book a month, so those books would last for quite a while if you only read a book a month.

Amazon Kindle Indie Author Exclusives

Amazon has a program called KDP Select. Authors who enroll in this get some benefits and have to give up some things in return -

  1. Indie Authors who join KDP Select must let their books become part of the Kindle Owners’ Lending Library. There is a KDP Select Global Fund and authors get approximately $2.29 per book borrow.
  2. Indie Authors get to offer their books for free to Kindle owners for 5 days out of every 90 days. This ‘free marketing’ thing is the big carrot for indie authors desperate to get some awareness among readers.
  3. Indie Authors have to give Amazon a period of exclusivity. They cannot sell their book via any other ebook store while they are enrolled in KDP Select. No other ebook store includes the authors’ websites and blogs.

The big draw for authors is that they get to give away their books for free for 5 days in every 90 day stretch. This is free marketing. In return they must enroll their books in the Kindle Owners’ Lending Library program. They get $2 or so per borrow, so it’s not all bad.

The really tricky part is the Kindle Store exclusivity.

Are Kindle Owners’ Lending Library and Indie Author Exclusives a good thing for Kindle and Amazon?

At first glance they do seem to be an advantage -

  1. Amazon gets exclusives for hundreds of thousands of books from Indie Authors and some smaller Publishers and some published Authors.
  2. Amazon can claim, quite correctly, that it has more books for sale than any other ebook store.
  3. Amazon can beef up its Kindle Owners’ Lending Library. It certainly sounds impressive to hear ‘Borrow free books from 300,000 titles’. It is only afterwards that readers realize it’s 1 book per month and that only about 0.1% to 1% of those 300,000 books are of any interest to them.
  4. Amazon can sell more Amazon Prime memberships by dangling the carrot of the Kindle Owners’ Lending Library in front of Kindle owners.
  5. Amazon has more ‘free books’ thanks to Indie Authors and Smaller Publishers and some Published Authors offering their books for free. This attracts a lot more readers to the Kindle Store.
  6. Indie Authors generally price their books cheaper. This leads to Kindle Store having lower average prices than other stores. Again, this attracts more readers to the Kindle Store.
  7. Notice the beauty of this (from Amazon’s perspective) - Amazon is getting authors to give it exclusivity and readers to buy Prime Memberships for something that in a free market would happen naturally.

How could hundreds of thousands of extra titles not be an advantage? How could hundreds of free kindle books every day not be an advantage? How could hundreds of thousands of $1 and $3 and $5 books from indie authors not be an advantage?

Well, perhaps first we should look at what’s happening in the Kindle Store.

Please also see our post on The Relentless Fall of eBook Prices for more details on what the next section covers.

Kindle Store - Kindle Book Prices keep falling

Kindle Store is seeing a massive fall in the prices of the Top 100 Bestselling books.

  1. Kindle Store Top 20 - 11 books below $5 and 4 books below $2 in the Top 20. That’s 55% below $5 and 20% below $2.

  2. Kindle Store Top 40 – 24 books below $5 and 11 books below $2 in the Top 40. That’s 48% below $5 and 27.5% below $2.

  3. Kindle Store Top 100 – 55 books below $5 and 24 books below $2 in the Top 100. That’s 55% below $5 and 24% below $2.

  4. Kindle Store Summary – 1 out of every 2 books in the Top 100 is $5 or less. 1 out of every 4 books in the top 100 is $2 or less.

This is really quite stunning.

55% of the Top 100 books are now $5 or less. 24% are $2 or less. There’s not very much money you can make on books below $5. With books below $2 there’s hardly any money.

Keep in mind that Amazon uses weighted algorithms to try and keep down cheaper books. Cheap books are taking over the Top 100 List despite Amazon’s best efforts.

Amazon is, in effect, causing this Fall in eBook Prices to Happen

How?

  1. Devaluing books by offering ‘Free Book a Month’ in the Kindle Owners’ Lending Library. If readers can get 300,000 books for free via Amazon Prime, then why pay $10 for a book?
  2. Devaluing books by letting authors offer their books free 5 days out of every 90. This means that there are hundreds of free kindle books from indie authors and smaller publishers EVERY SINGLE DAY. Why pay?
  3. Massively handicapping Publishers. Indie Authors get their free promotion days and get more publicity. Indie authors get their Kindle Lending Library exposure and get more awareness. They suddenly are on an almost equal footing with Publishers.
  4. Until recently, Amazon used to carry over free book downloads into the Paid Charts. You’d see a book that was #1 in the Free List show up as #50 in the Paid List. So, even without any actual sales, free books would seem to have sold well. Amazon also does this with books that are the Kindle Daily Deals. This is unfair to books that are actually selling for full price.
  5. Amazon is pushing its own books hard. That blurs the line because the difference in polish and quality between indie books and Amazon published books is less than the difference between indie books and the NY Times Bestsellers. Please Note: I mean the ‘average indie book’, not the very good ones.
  6. Amazon is massively promoting ‘free kindle books’ and ‘cheap prices’. Thus it’s bringing Kindle owners into the store and ecosystem with the ‘free and cheap’ mentality.
  7. Amazon is massively promoting ‘free’ and ‘cheap’ without considering the consequences. Amazon just wanted to beat Nook and Sony and never realized that it would kill the golden goose of book profits if it created a rush for free kindle books. It wanted to steal the cake and keep it for itself. It’s about to realize – Giving away free slices to every reader means the cake is already gone.

Amazon wanted both benefits -

  1. To use free kindle books to beat Nook and Sony. To use ‘free loans of books’ to sign people up to Amazon Prime.
  2. To sell $10 books to Kindle owners and make money.

Now it’s finding out the hard way that it isn’t possible. You can’t destroy a market to conquer it – then expect it to revive itself the instant you’ve consolidated your victory. In life, there are long-term consequences to our actions.

All those people who got lured to Amazon and Kindle by the promise of free and cheap? They want free and cheap forever. And they are going to get it.

Because all those indie authors Amazon invited in to fill up its eShelves and create the largest ebook store – they like free and cheap even more than readers.

Amazon will have to lie in the bed it has unmade

Amazon is fighting the Book Wars on two fronts -

  1. It is trying to kill and replace Publishers. Witness all the Publishing imprints it is creating. Witness how it keeps promoting smaller Publishers and Indie Authors to try and destroy the ‘awareness and perception’ gap between Big Publishers and everyone else.
  2. It is trying to kill its competitor devices and stores – iBooks, Nook, Nook Store, Kobo, Sony.

It decided, for some strange reason, that the best way to accomplish this is via cheap ebook prices. The strategy worked. Perhaps better than Amazon hoped.

The only problem is -

  • If you destroy the value perception of books to win the Books Market, the prize ends up being not worth winning.

Amazon is winning the Book Wars by effectively driving the value perception of books to $1 and $0.

If it does end up winning and controlling all of Books – It is stuck with $1 and $0.

It can’t just go in and un-train readers and indie authors. Both parties are now wedded to $1 and Free. Neither is going to switch to $9.99.

The $25 Billion a Year Books Market will be $3 Billion a Year with Zero Profits if Amazon Wins

Books in the US are supposed to be a $25 billion a year market. In 2012 eBooks are supposed to have earned $5 billion.

However, that’s what Publishers have created.

Amazon is creating a market where everything is $1 or $0.

The market that Amazon is driving us towards won’t be $25 billion a year. It’ll be $3 to $5 billion a year. Furthermore, there will be zero profits in the market. This might suit Amazon because it hopes to sell those people bananas and faucets and computer cables. Books, for Amazon are just loss leaders.

However, what about authors and editors and Publishers and everyone else who makes a living from books? Well, their entire careers are being burnt down by the spark Amazon has ignited with its free and cheap strategy in ebooks.

Kindle Lending Library and Indie Author Exclusives aren’t an advantage for Amazon. They are just means to accelerate the destruction of the Books Market. Even as Amazon wins the eBook Wars, it is doing everything it can to ensure that the prize is completely worthless.

Kindle Paperwhite vs Kobo Aura HD

We just discussed Kindle vs Kobo heating up with ZDNet calling Kobo Aura HD ‘the best eReader’. It’s time to do a Kindle Paperwhite vs Kobo Aura HD review.

Disclaimer: I only own Kindle Paperwhite and Nook Glowlight and other Kindles and Nooks and the older Kobos. I don’t own Kodo Aura HD. So please keep that in mind.

Kindle Paperwhite vs Kobo Aura HD – Context

We are comparing Kindle Paperwhite and Kobo Aura HD for the crown of ‘best eReader’. We aren’t considering Tablets at all. We won’t give much weight to the price difference though we will discuss it.

Assume you have $169 and have to buy one eInk eReader. Will it be Kindle Paperwhite or Kobo Aura HD?

Kindle Paperwhite vs Kobo Aura HD – Kobo Aura HD advantages

Kobo Aura HD has the following main advantages -

  1. The HD screen. This is definitely a big advantage and a very clear one. 1440 by 1080 pixels on Kobo Aura HD is considerably better than 1024 by 758 pixels on Kindle Paperwhite. Additionally the 265 pixels per inch on Kobo Aura HD are Retina display level and much sharper than the Kindle Paperwhite’s 212 pixels per inch.
  2. The Reading Experience will be better on Kobo Aura HD. The combination of the HD eInk screen and better lighting (Note: This is according to the ZDNet review – there are individual differences in screens) will make for a clearly better reading experience on Kobo Aura HD.
  3. More in-built memory and a microSD card slot. Kobo Aura HD has 4 GB of memory while Kindle Paperwhite has just 2 MB. Kobo Aura HD also has a microSD card slot. This can be very very useful if you have a ton of books.
  4. Kobo Aura HD is a latest generation eReader. If you buy Kindle Paperwhite now you definitely know the screen is a generation behind Kobo Aura HD. You also have the added fear that Kindle Paperwhite 2 and Nook Glowlight 2 might be much better. With the Kobo Aura HD you are at least assured you’ll have a latest generation eReader for a year or so.
  5. By creating the ‘no compromises, best reading experience’ $169 Kobo Aura HD, Kobo has shown that it is focused on readers. Amazon seems to have forgotten readers in its pursuit of Tablets and Phones and Casual Readers and who knows what else. It might very well be the case that Kobo does a better job for readers over the next 4-6 years.
  6. ePub support which means you can buy from any store out of Nook, Sony, Kobo and the other ePub Stores. It also means your library is in ePub format and you can move freely to a Nook or Sony Reader in the future. With Kindle you are stuck with Kindle Store.
  7. [Separate since it's important] Kobo books can also be read on any other eReader that supports ePub with Adobe DRM. That includes Nook eReaders and Sony eReaders. This means that if you don’t like the next Kobo eReader you can easily switch. With Kindle you’re locked into the Kindle ecosystem (unless you decide to leave eReaders and go to Tablets).

What’s most interesting to me is that the Kindle Paperwhite Product Page and Kindle Paperwhite Reviews focus on two main strengths – the screen resolution and the reading light. Kobo Aura HD clearly beats Kindle Paperwhite on screen resolution and perhaps beats it on the quality of reading light too. Basically, Kindle Paperwhite’s two biggest strengths are now weaknesses. Kudos to Kobo for lighting a fire under Kindle Paperwhite. This will force Amazon to do something big for Kindle Paperwhite 2.

Kobo Aura HD also has the following advantages -

  1. Kobo Aura HD’s screen is 6.8″ and is slightly larger than the Kindle Paperwhite’s 6″ screen. Makes it closer to the size of a real book.
  2. Kobo Aura HD’s ridged back is apparently easier to grip.
  3. Kobo Aura HD’s light can be turned off. Additionally, there is a dedicated light on/off button. Doesn’t seem like a big deal until you are in bed and trying to start/stop reading quickly and conveniently.
  4. Kobo Aura HD supports cbz and cbr formats for comic books, while Kindle Paperwhite does not. Note: There might be a way to get comic books on Kindle Paperwhite – not sure about this area. Support for comic books is big for people who read comics.
  5. Kobo Aura HD comes with Kobo’s Reading Life ‘social reading’ feature. This gives you lots of reading stats and you also have the option to share these socially.
  6. Kobo Aura HD has more font sizes and styles. Note: To Be confirmed after actual use – However, the choice of 10 font styles and 24 font sizes and the option to choose font sharpness and weight definitely seems better than Kindle Paperwhite’s font options.
  7. Kobo is a very dynamic company and isn’t afraid to try new things. Whether it’s adding features like Kobo Reading Life or it’s taking a chance with the Kobo Aura HD (Amazon and B&N were probably offered the screen first). You know you’ll get something exciting and new from them every year.
  8. Kobo Aura HD is available in black and white. It might also be available in Espresso color too (whatever that is). Kindle Paperwhite is only available in black.

As you can see from these lists, the Kobo Aura HD is a real challenger to the Kindle Paperwhite.

Kindle Paperwhite vs Kobo Aura HD – Kindle Paperwhite advantages

Kindle Paperwhite has the following main advantages -

  1. Kindle Store has the most books and the best ebook prices. When it comes to range of books and price of books, Kindle Store is the best.
  2. Kindle Store has the most free books. Indie Authors sign an exclusive deal with Amazon in return for the ability to promote their books as ‘free books’ for 5 days per 3 month period. That means two things – the most free books are in the Kindle Store (most are indie author books), the most cheap indie author books are in the Kindle Store (because they sign the exclusivity deal).
  3. Kindle customer service is stellar. Kobo Customer Service is supposed to be atrocious. Chances of you needing customer service are low – perhaps 10% to 20% of people will have any real issue. If you do, then you’ll be in trouble with Kobo. I’ve seen 2-3 reports myself of really bad customer service and none of great customer service.
  4. Kindle Paperwhite is backed by very solid infrastructure. You get reading apps for various platforms like iOS, Android, PC, and Mac. You get features like WhisperSync that sync your place in the book across devices.
  5. Amazon is probably going to be around longer than Rakuten (Kobo’s parent company). Additionally, Kindle is probably going to be around longer than Kobo. The demise of Sony eReader and the ongoing gradual decline of Nook shows that the #2 and #3 players in the eReader market aren’t as safe a bet as the #1 player. On the flip side, Kobo is very aggressive and hungry and it seems to want the #1 spot more than Kindle does.
  6. It’s a bit hard to compile a proper list of biggest strengths because Amazon spends so much time focused on the screen and the reading light. Now that they aren’t advantages, there’s not that much left apart from the store and the infrastructure.

Kindle Paperwhite also has the following advantages -

  1. I haven’t used the Kobo Aura HD so this might not be true for it. Kobo devices tend to be shoddily made. The best, when it comes to build quality, are Sony eReaders. Nook eReaders are also good. Kindle is not very good but decent. Kobo was weakest. Perhaps with Kobo Aura HD it’s changed. Perhaps not. If you can try the device out in person, I’d strongly recommend that.
  2. Kindle Paperwhite is slightly lighter (213 grams versus 240 grams) and slightly more compact (Kindle Paperwhite is 169 mm x 117 mm x 9.1 mm, while Kobo Aura HD has Length: 175.7 millimeters, Width: 128.3 millimeters, Max Depth: 11.7 millimeters, and Edge depth:  7 millimeters).
  3. Kindle Paperwhite comes with lots of features like X-Ray which lets you get information on characters in books. With the combined information of Shelfari and (in the future) GoodReads, this will be a hard feature for other eReaders to match.
  4. IF you’re an Amazon Prime member then you get access to the Kindle Owners’ Lending Library and can loan out one book a month out of a selection of titles. There are a lot of books available but only around 100 current and past New York Times Bestsellers and the Harry Potter titles.
  5. Free WiFi at AT&T Hotspots across the US.
  6. Kindle Paperwhite has a limited app store. It’s now closed so there will not be new apps – However, there are a few hundred apps and games available.
  7. Kindle Paperwhite supports Doc and Docx formats while Kobo Aura HD does not.
  8. There is a Kindle Paperwhite 3G version available for $179 (or $199 without Ads). There’s no Kobo Aura HD with 3G.

It’s clear that Kindle Paperwhite has a lot of advantages of its own. It’s interesting to see Amazon once again in a familiar position – Not having the best hardware but leveraging a better store and a better infrastructure to remain competitive.

Kindle Paperwhite vs Kobo Aura HD – The Question of Kindle Paperwhite 2

The biggest thing looming over this Kindle Paperwhite vs Kobo Aura Review is the fact that Kindle Paperwhite 2 is probably scheduled to arrive in September or October 2013.

That means, in 3 or 4 months, the discussion will be Kindle Paperwhite 2 vs Kobo Aura HD vs Nook Glowlight 2. If you aren’t in a rush, then it’s best to wait for the Kindle Paperwhite 2 and Nook Glowlight 2 launches in September or October. Since Kobo, Amazon, B&N all buy eInk screens from the same company (PVI/eInk) it’s likely we’ll end up with the same HD eInk screen on all three devices. Then it comes down to smaller features and store and book prices and infrastructure – a war that Kindle will perhaps win easily.

Kindle Paperwhite vs Kobo Aura HD – Price and Quality of Reading Experience and Total Cost of Ownership

Price is obviously a factor. Kobo Aura HD is $169. Kindle Paperwhite without Ads is $139. Kindle Paperwhite with Ads is $119.

First, let’s add $10 for the wall charger (unless you plan on charging from a computer always). That means Kindle Paperwhite without Ads is $149. At that price Kobo Aura HD at $169 is a much better option. You get the HD screen and a microSD card slot and 2 GB of extra memory. The Reading Light is also supposed to be more evenly spread without glitches.

Kindle Paperwhite with Ads is $129 after factoring in the wall charger. That’s $40 cheaper than the Kobo Aura HD and will be very tempting for those on a tighter budget. It clearly beats Kobo Aura HD for such readers.

Finally, when factoring in Total Cost of Ownership it’s worth including two things – number of free books, resale price.

Kindle Paperwhite wins on both. Kindle Paperwhite will have much better resale value due to Amazon being a much trusted company. Kobo Aura HD has the HD screen – However, very few people know of Kobo or Rakuten. Kindle Paperwhite has a LOT more free books. Amazon has a special program for authors that leads to exclusives for Amazon. If you plan on surviving on free and cheap books, Kindle Store is the best choice and Kindle Paperwhite wins over Kobo Aura HD.

Kindle Paperwhite vs Kobo Aura HD – Which should you buy?

This is a really tough question. Some answers are easy -

  1. If money is no object, and you want the absolute best reading experience, get Kobo Aura HD. This is a really big deal. Kindle and Nook were forgetting about ‘the best reading experience’ and going for ‘the cheapest reading experience’. They were forgetting hard-core readers and targeting casual readers. It’s really good to see Kobo go for the best reading experience and cater to hard-core readers.
  2. If you already have a library of books from Kobo, Nook, or Sony – get Kobo Aura HD.
  3. If you want to be able to buy books from Kobo or Nook or Sony or another ePub store – get Kobo Aura HD. Same if you think that down the line you might want to switch to a Nook eReader or a Sony eReader. Kobo does not lock you in.
  4. If you want to do more than just read – Don’t buy either. Get a Tablet.
  5. If you have a tight budget – get a Kindle Paperwhite with Ads for $109 + charger for $10. Consider the Nook Simple Touch on sale for under $50.
  6. If you have a library of Kindle Books – get a Kindle Paperwhite.
  7. If you want the best customer service – get a Kindle Paperwhite. Note: Keep in mind that customer service might not come into play at all. However, if and when it does, Amazon is much better than Kobo.
  8. If you want lots of cheap and free books from indie authors – get a Kindle Paperwhite.
  9. If you want social features and statistics on your reading habits – get Kobo Aura HD.
  10. If you need a microSD card or want 4 GB instead of 2 GB – get Kobo Aura HD.
  11. If you want the lightest and most compact eReader – get Kindle Paperwhite or Nook Glowlight.
  12. If you want the cheapest reading option – pick a $69 Kindle WiFi or get the Nook Simple Touch when it next goes on sale (it drops to $49).

The other answers are difficult.

The safest options are -

  1. Wait for Kindle Paperwhite 2 and Nook Glowlight 2 to launch. Make a call then with all the information available on Kindle vs Nook vs Kobo.
  2. Buy Kindle Paperwhite and assume that the better customer service and better infrastructure and services and the better store are worth more than the HD screen of the Kobo Aura HD.
  3. Buy Kobo Aura HD and assume that if you need customer service it won’t be great but you’ll live with it. Note: This is an easier call if you have a store nearby that sells Kobo Aura HDs.
  4. Buy both Kobo Aura HD and Kindle Paperwhite, if your budget allows it.
  5. Buy one of the very cheap eReaders for now and wait to see what the next generation eReaders from Amazon & B&N (Kindle Paperwhite 2 and Nook Glowlight 2) are like. The Nook Simple Touch (the one without glowlight) is often on sale for as low as $49 and Kindle WiFi is $69.

I’d suggest #1 or #3 or #5. Truth is that having a HD screen on your eInk eReader is a big deal. If you get a Kindle Paperwhite you will know you’re missing out on the obviously better HD eInk reading experience. If you can wait, it’s worth it to see what Kindle Paperwhite 2 and Nook Glowlight 2 are like. If you can’t wait, either grab a Nook Simple Touch on sale for under $50 or go with the Kobo Aura HD.

Amazon, Kindle, Baby Boomers – Is Amazon aligning itself to serve Baby Boomers?

This comment from John McSweeney, regarding Amazon’s Grocery service AmazonFresh, set off a spark -

It’s a GREAT idea.  Our growing elderly population no longer has the strength to shop at the supermarket. All would welcome a home delivery service that is not currently available at a reasonable cost. Easily buy $300 a month (sometimes in a week).

Thanks John!

The question we were focused on in our Amazon Grocery post was – What does Amazon see that no one else sees?

Well, the answer is obvious if you look at all of Amazon’s recent moves.

What’s common to Amazon’s most recent products and initiatives?

Let’s consider the big moves Amazon has been making -

  1. Kindle that allows instant access to books, large font sizes, Read to Me. Kindle that is much lighter and easier to hold than paperbacks and hardcovers.
  2. Kindle Fire HD that allows easy and instant access to email, Internet, movies, TV Shows, music. Kindle Fire HD that is much cheaper than a PC and easier to use. It’s cheaper than iPad too (although not as easy to use).
  3. Expansion of AmazonFresh Grocery delivery service.
  4. Expansion into selling clothes and shoes. Allows Amazon customers to avoid going to the stores more and more.
  5. Talk of a Kindle Phone and a Kindle TV. Which would also focus on ease of delivery and on bypassing trips to stores.

There are two themes that stand out -

  1. These are products focused on making things convenient and easy.
  2. These are products focused on replacing ‘trips to stores’ and ‘waiting forever for shipped items’ with ‘instant access’.

Yes, this does help everyone. However, what group does this benefit immensely?

Baby Boomers.

In fact, if we dig in deeper, there are lots and lots of moves that seem targeted specifically at Baby Boomers -

  1. Large Font Sizes in Kindle eBooks make large print books redundant. Not to mention large font sizes turn ANY book into a Large Print Book.
  2. Read to Me.
  3. Light weight of the Kindle is great for those with weak hands and/or arthritic hands.
  4. AmazonFresh Grocery delivery service - No hassle of driving to the store, carrying groceries around, and all the other headaches of a grocery trip. Why would Amazon include delivery from local merchants? John McSweeney is right – Amazon is building up a very cheap delivery service that suits Baby Boomers perfectly.
  5. Kindle Fire for Movies and TV Shows – No having to go to Blockbuster. No need to buy movie DVDs online and then wait 3-4 days. No having to go to the Theater and all the problems that entails.

Perhaps the Kindle was the first step. Perhaps the success of and market demand for Kindle among Baby Boomers set off a spark.

Whatever it was, it now seems that Amazon is 100% focused on Baby Boomers.

Baby Boomers are the Perfect Customers

Firstly, you can read my Baby Boomer, Kindle eReader post from 2009 to see why Baby Boomers are perfect customers for Kindle. It includes interesting details such as -

  1. Baby Boomers and ‘Matures’ born prior to 1965 constitute 54% of the population. They account for 67% of ALL book purchases.
  2. Kindle is the ONLY eReader that actually caters to this group. It can still be improved in many ways. However, other eReader makers are completely ignoring Baby Boomers. Well, it’s not like they buy 67% of all books.

It’s not just books and reading where Baby Boomers are great customers.

We can look at some Baby Boomer Statistics to see just how important they are as customers. Taken from another 2009 post on Baby Boomers & Kindle.

  1.  US News says the 50-plus demographic holds 75% of total financial assets.

    U.S. News talks about how only 10% advertising is targeted at the 50 plus demographic (Despite them having 75% of the financial assets) -

    As a group, they are the most affluent Americans, with three quarters of the nation’s financial assets and an estimated $1 trillion in disposable income annually. Yet while boomers are hurtling toward their retirement years–the oldest boomers will begin turning 60 next year–Madison Avenue continues to prize youth. Only about 10 percent of advertising is directed specifically at the 50-plus market. “The demographic sweet spot has always been 18 to 49,” says Brent Green, author of Marketing to Leading-Edge Baby Boomers . “Once you turn 50, you fall off the planet.”

  2. Marketing Sherpa says Baby Boomers hold 70% of US resources although they are just 25% of the population.

    78.2 million baby boomers; 50.2% are women (courtesy US census).

    They’re 25% of the American population. Marketing Sherpa says they hold 70% of US resources.

Baby Boomers aren’t just an important market segment. They are THE market segment. If a market segment holds 70% to 75% of the assets, then there’s no point going after the coolness factor of teenagers with no money to spend.

People are always talking about how Facebook has all the college kids and how Tumblr has the ‘coolness’ factor.

  1. Guess how much those ‘cool’ kids earn Facebook? $5 per year.
  2. Guess how much all the ‘coolness’ earned Tumbler? Less than $12 million last year.
  3. Guess how much the average Amazon customer earns Amazon? $200 per year. Note: It’s even higher for Apple.

Would you rather have the cool and penniless kids OR the ‘not considered cool/impressionable/influencable by marketers’ rich, older customers?

Money Talks – Baby Boomers will dictate the Market

How could a $399 Kindle be a success when all the experts gave it no chance? When it had zero cool factor?

Simple answer – It got the job done for the REAL Customer Base. People who read books and people who were struggling with small fonts and availability issues and awkward book weights and sizes.

We might very well see the same thing play out with Kindle Phone and AmazonFresh and other Amazon initiatives that, for all practical purposes, are optimized for Baby Boomers -

  1. Experts don’t ‘get’ them.
  2. Teenagers don’t think they are cool like sparkly vampires and hybrid WerePandas with big baby eyes.
  3. The products and devices and services themselves are suited for Baby Boomers. Well, they aren’t perfect – just much better than what other companies are offering.
  4. Baby Boomers, the demographic that owns 70% to 75% of financial assets, pick Amazon products and devices and services because they are ideally suited for Baby Boomers.
  5. The devices and services succeed. Surprise! The group with 75% of the Financial Assets chooses them – So coolness doesn’t matter.

It doesn’t matter what the cool kids or the know-it-all tech bloggers think. The battle will be won by the company that best serves customers who have money. That just happens to be Baby Boomers.

Is Amazon aligning itself to serve Baby Boomers?

Firstly, let’s look at this:

Right Now – 78.2 million Baby Boomers.

2030 – In 2030, there are expected to be 57.8 million baby boomers (according to projections); 54.9 percent would be female

Baby Boomers aren’t just the most important customer segment right now. They are probably going to remain the most important customer segment for the next 18-25 years.

Secondly, let’s consider what Amazon is building, in effect:

  1. A delivery service that will allow it to deliver both groceries and other goods same-day in all the major cities.
  2. Devices that let it deliver digital content straight to users.
  3. Subscription services and services like Amazon Prime that gets users to buy everything from Amazon.
  4. Devices that are optimized for Baby Boomers in multiple ways.
  5. A network of warehouses around the country that will allow it to step in. Step in if lots of people can’t afford driving to stores. Step in if lots of people don’t want to drive to stores.
  6. A very high volume business that has low profit margins and is thus hard to compete with. What company wants to compete with Amazon’s $60 billion a year of revenues with a 1.1% profit margin. There are far more interesting targets like Apple’s 37% profit margins and Microsoft’s 70% profit margins.
  7. A level of scale that allows for numerous efficiencies. Which can then be passed on partially to customers - thus creating even more of a defence against competitors.

Amazon is building the perfect business for a world where large parts of the population give up on stores. This might happen. In fact, it’s likely to happen for a few reasons -

  1. Convenience of getting things delivered to your home. Same day delivery, if Amazon can pull that off, would totally cement this convenience.
  2. Baby Boomers not wanting to drive and/or not being able to drive. The amount of effort just isn’t worth it. Why spend 2 to 3 hours every few days just to pick up the exact same groceries?
  3. Rising price of oil and driving. Note: Oil from fracking is more expensive. So there isn’t really any ‘miracle source of cheap oil’ left.
  4. A shift away from a driving based economy to a local based economy.
  5. The gradual death of stores as they fail to compete with online businesses. What’s happening in books and movies might soon spread to other areas.
  6. People beginning to value their time more and factor in the opportunity cost of driving everywhere to shop. You can already see this happen with book buyers who talk about the 35 minutes trip to a bookstore being too time-consuming.
  7. Even a few stores closing accelerates the shift to online. If a mall sees a shoe shop and a bookstore close, then all the people who visited primarily for those two stores stop coming. That leads to lost sales for other stores too.

It seems that one or both of the following are true -

  1. Amazon is aligning itself to serve Baby Boomers.
  2. Amazon is aligning itself to serve a world where people want things delivered to their homes. Where people don’t want to drive to stores.

In either case, Amazon is building up a line of products and services that serve Baby Boomers very well. Baby Boomers are, based on financial measures, the most important market segment. Amazon is well on its way to locking up a large part of the Baby Boomer segment. Baby Boomers might very well be what drive Amazon to solid profitability.

Kindle India – Amazon lays groundwork to sell Kindle Fire HD, Kindle Phone in India

We’ve talked a lot about the importance of China and India for Amazon. Both Kindle Fire HD and Kindle Phone will live or die based on how well Amazon can tap into emerging markets like China and India.

Kindle Phone, Kindle Fire HD, and other Kindle devices must target emerging markets like China and India to have any real chance of competing with the Apples, Samsungs, and Microsofts of the world.

Amazon expanded its App Store to China just a few weeks ago. Just last week it started selling Kindle Fire HD International to 170 countries, including China and India. Now, we get news from Times of India that Amazon India has opened as an online marketplace.

What do we know about Amazon India?

Actually, quite a bit.

  1. It’s an online marketplace for the moment. Third party sellers can list their products and sell them to customers.
  2. Currently, it sells only Books and Movies & TV Shows. Amazon India offers 7 million local and imported books. Amazon India offers 12,000 movie titles and shows.
  3. It’s expanding to Phones and Cameras and Electronics soon.
  4. India’s online market is still very small – $800 million in revenue from 13 million online shoppers in 2012. Note: This is in a country of more than 1 billion people.
  5. Internet penetration is just 8% so lots of room to grow.
  6. India has a few players already in this space – FlipKart (India’s largest online retailer) and Infibeam have both set up similar marketplaces.
  7. Indian regulations don’t allow Amazon India to sell its own products. So Kindle Fire HD and Kindle can’t be sold via Amazon India. This is a bit strange -

    Amazon will not stock and sell its own products because India’s FDI regulations do not allow online multibrand retailers to sell their own products.

This is the most interesting part from the Times of India article -

The country’s internet penetration stands at about 8% with 137 million users, of which roughly 20 million are shoppers including the online travel agency market.

This reflects China’s online market back in 2005. China now has 538 million internet users and 227 million online shoppers.

It is quite possible that in the next 8 to 12 years India gets to where China is now. If that happens, Amazon would be glad it started building Amazon India now.

Kindle Fire HD India – How can Amazon sell Kindle Fire HD and Kindle Phone in India?

If what Times of India writes i.e.

Amazon will not stock and sell its own products because India’s FDI regulations do not allow online multibrand retailers to sell their own products.

is true, then Amazon is in a real quandary.

To sell Kindle Fire HD and Kindle Phone, Amazon would have to sell via other retailers. It couldn’t sell them via Amazon India.

Perhaps Amazon views Amazon India as a foundational step to build its brand and customer base. It can always figure out workarounds later. Who knows what legal changes India will see in the next 5 to 10 years. In Canada, Amazon worked out some complicated agreement in 2012 that allows it to set up further warehouses and expand. Eventually, Amazon should be able to set up shop properly in India and sell Kindles and Kindle Phones and Kindle TVs and Kindle Fire HDs.

For the moment, we just have a complicated situation where Amazon has set up Amazon India but can’t sell its own products like Kindle and Kindle Fire HD through it.

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