Kindle & Kindle Paperwhite under pressure from Kobo & Kobo Aura

The hard times B&N is facing with its Nook HD and Nook HD+ tablets seem like they will greatly strengthen Amazon’s position as the #1 eBook, eReader, and Reading Tablet seller. Good times for Kindle Fire HD and Kindle Paperwhite and the Kindle Store.

Well, not so fast.

It seems Kobo is growing rapidly. Additionally, Kobo’s new Kobo Aura HD eReader is doing well. This puts pressure on Amazon to really deliver with Kindle Paperwhite 2.

Kobo morphing into the type of Competitor B&N should have been

Nate at The Digital Reader shares some figures from Kobo’s Strong Growth Press Release -

  1. Kobo’s revenue was up 143% in 2012. In Q1, 2013 it’s up 98%.
  2. Kobo now has 14.5 million customers worldwide. That’s pretty impressive. Perhaps even more impressive is that Kobo added 2.5 million customers just in the last 3 months.
  3. Hardware sales increased 145%.
  4. Half of the new Kobo Aura HD sales were to new customers. No details on precise numbers, but Kobo Aura HD accounted for 27% of Kobo devices sold at retail.
  5. Rakuten is Kobo’s Parent Company and it’s very strong. Rakuten’s Internet Services Division generated $3 billion in revenue in 2012. Rakuten’s Internet Finances Division generated $1.5 billion.
  6. Rakuten has very strong international presence and solid partnerships. As opposed to B&N, which is US-centric, Kobo is World-centric.
  7. Indie Author titles now account for 10% of Kobo sales (by unit sales, not revenue).

It’s really interesting to see these figures. Keep in mind that B&N’s Nook division sales were actually down in Q4, 2012. While a lot of that is due to poor device sales, it still makes Kobo’s 143% growth last year, and its 98% growth in Q1, 2013, really, really impressive.

Adding 2.5 million new customers in the last 3 months is very impressive too. Of course, these are registrations, so we don’t know how many are paying customers.

Nevertheless, a 14.5 million customer market makes Kobo an important eReader and eBook seller.

Does this really put pressure on Amazon and Kindle?

Yes.

Normally, B&N would have been the one to raise the bar by releasing a HD screen eReader. This year, perhaps because of its disastrous holiday season, B&N wasn’t able to.

That would normally have meant big gains for Amazon. It can keep selling Kindle Paperwhite while preparing a solid Kindle Paperwhite 2 for the Holiday Season.

However, Kobo stepped up and shipped the Kobo Aura HD.

This does a few things -

  1. The ‘new shiny thing’ in eReaders is now a HD resolution eInk screen. Kindle Paperwhite is now seen as ‘last year’s model’.
  2. People start assuming a Kindle Paperwhite 2 is around the corner. Lots of them delay their purchases. Regardless of when Amazon planned on releasing Kindle Paperwhite 2, it’ll have to revisit those plans.
  3. New customers to eReaders hear about Kobo Aura HD. If Kindle Paperwhite 2 were available, new customers would just gravitate to it because ‘Kindle = eReader’. But they hear ‘HD’ and want to check out the Kobo Aura HD.
  4. Internationally, it puts a lot of pressure on Amazon because Kobo has strong presence internationally. Amazon is well aware of the HUGE advantage of becoming the ‘default’ eReader and ‘default’ eBook Store in a country.
  5. Amazon now has to anticipate moves by both B&N and Kobo. Amazon’s strategy so far has been to let B&N take a shot, and then counter. That’s what it’s done with the Nook Color, the Nook Simple Touch, and the Nook Glowlight. If it suddenly starts seeing 1 release a year from B&N, and 1 release a year from Kobo, Amazon will have to adjust its strategy. Things become especially difficult if Kobo does spring releases and B&N switches to Summer or Fall releases.
  6. It ensures there is at least one strong contender left standing. If B&N were to quit the eReader market in 2013 or 2014 or 2015, Amazon would be left with no competition if Kobo weren’t around. Amazon might see a strong #2 fall away, and be promptly replaced by a stronger and more dangerous #2.
  7. It helps Kobo capture more market share. This will become very important in the long run. A strong #2 with 20% market share and a strong #3 with 10% market share is much more dangerous than having just a strong #2 with 20% market share. Things like economies of scale and word of mouth and network effects really come into play once you get to tens of millions of customers.
  8. Kobo can push harder worldwide. Outside of the US and UK, people are neither in love with Amazon to an incredible extent, nor are they already invested in the Kindle ecosystem. For those people, it comes down to better device and better ebook store and better service. While Kobo’s service is supposedly atrocious, their device is now shiny and pretty and HD. Kobo also has a good ebook store in most countries.

Kindle Paperwhite is no longer the ‘newest and best and default’ eReader. Well, it might still be best. We don’t know how well Kobo Aura HD works.

However, Kindle Paperwhite definitely isn’t ‘newest’ and it definitely doesn’t have a HD screen which can be used as a marketing differentiator. If enough people start thinking ‘HD’ eInk screens are a big deal, then Kindle begins to slip from its status as ‘the first eReader you think of when someone says eReader’.

What could make Kobo even more dangerous?

Buying Nook Media. That’s what.

If Kobo can get Nook Media for $1 billion or so, it would instantly go from approximately 10% market share to 25% to 30% market share. It would also give it a brand that’s strong in the US.

Worldwide, Kobo could leverage the larger economies of scale to really push for market share.

Finally, you can be pretty sure that a LOT of Nook owners would choose Kobo over Kindle. Kobo can read their existing Nook Books. Kobo supports ePub. Kobo isn’t Amazon.

Could B&N remain a strong #2 based on just Reading Apps?

It’s very unlikely.

B&N might exit Reading Tablets and eReaders. The former seems likely, and the latter seems a possibility.

It’s quite conceivable that B&N stops making devices altogether. That it tries to fight the Book Wars using Reading Apps. There are a few problems with this approach -

  1. Users of a device tend to go with the ‘default’ Reading App. Kindle Fire owners use the in-built reading app. Apple users tend to use the iBooks App. And so forth.
  2. When users don’t go with the ‘default’ reading app, they go with the ‘Best’ or the ‘Most Well-Known’ Reading App. Best Reading App varies wildly by platform. B&N isn’t ‘best’ on any platform except Nook devices. ‘Most Well-Known’ tends to be Kindle.
  3. Outside the US, B&N has no mind share. Most people won’t even know B&N’s Nook Reading Apps exist, or for that matter B&N. On the other hand, if B&N were able to sell devices internationally, users would gravitate to the in-built default reading app (which would be B&N’s own).
  4. Serious Readers want a device focused on reading. The more focused a device is on reading, the less likely it is to have ‘lots of Reading Apps’ and/or the option to ‘choose a Reading App from another ebook seller’. Kindles don’t have reading apps from other stores. Kindle Fire allows sideloading, but Kindle doesn’t allow anything.
  5. On another company’s device, you get taxed and/or get treated like a third class citizen. Apple forced Reading Apps to remove their ebook stores from the app, and also to remove their ‘buy’ buttons. It wanted a 30% cut. Amazon would simply never allow B&N’s Reading App in its Kindle Fire Store. Google could simply hide the B&N Reading App by making it hard to find.

Unfortunately for B&N, there’s only one way to keep fighting the Book Wars – to have both reading apps for other devices and your own devices (both Reading Tablets and eReaders).

It seems inevitable that Kobo will become the Pepsi to Kindle’s Coca Cola

Kobo is making a lot of good aggressive moves. It is fighting in Reading Tablets and eReaders. Its first few efforts have been terrible – However, it has been improving gradually, and at some point of time it’ll catch up. With the Kobo Aura HD it has really put the pressure on Kindle and Nook. Now Kindle Paperwhite 2 and Nook Glowlight 2 have to deliver.

As it grows likelier and likelier that B&N is going to leave Reading Tablets and eReaders. As Kobo keeps improving and pushing and expanding worldwide aggressively. It becomes more and more likely that Kobo will become the #2 eBook seller and the #2 eReader seller worldwide.

Once that happens, Amazon will find that Kindle vs Kobo is a much more dangerous fight for it than Kindle vs Nook. Rakuten is an Internet giant conglomerate (much like Amazon), and knows how to fight the Digital Book Wars much better than B&N.

By 2015 we might have Amazon wishing B&N had done better with Nook, and stayed around as an annoying but contained #2. Kindle vs Kobo is going to make Kindle vs Nook seem like a walk in the park.

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