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.

Why did Nook Touch pull ahead of Kindle?

On May 24th, this was my assessment of Kindle vs Nook 2

With Nook 2, B&N has left the Kindle behind and temporarily won the Kindle vs Nook contest.

With a Nook 2 now in hand, that feeling is confirmed. Consumer Reports has also handed Nook 2 its Editors Choice award.

Have a pretty major Kindle vs Nook vs Kobo mega-review lined up. However, the early findings from that research only add to the raison d’etre for this post, i.e.

Pointing out that Amazon’s complacency is becoming a major drawback. Nook Touch pulled ahead of Kindle primarily because Amazon has become very complacent.

This is going to manifest in other ways. Consumer Reports listing Nook Touch as their #1 choice is a very big warning sign for Amazon to wake up and get both a Kindle 4 and a Kindle Tablet out. And more importantly – to realize that it hasn’t already won the eReader and eBook Wars.

Is Amazon really getting complacent?

If you consider individual areas in isolation it doesn’t seem that way. However, combine all the data points and it paints a pattern –

  1. Amazon didn’t really react to Sony Reader Touch Edition (the newer version that used IR for touch and didn’t mess up readability). Whereas Sony messed up pricing and gave Amazon a breather, B&N was aggressive on pricing and stole the #1 eReader crown from Kindle. Basically, Amazon has known for 6+ months that a touch based eReader could beat it, but it hasn’t reacted.
  2. Amazon hasn’t been aggressive with technological improvements in eReader screen technology. It could have pushed eInk and Qualcomm and Pixel Qi to develop screens faster – As far as we know, it hasn’t.
  3. Amazon hasn’t done much since Kindle 3 came out. Kindle 3 totally destroyed the competition – But what have we had since then? Sponsored Screensavers? A Promise of Library Book Lending? Pretend Lending? None of these are game changers (the promise isn’t a gamechanger – regardless of how important the feature itself is).
  4. Amazon has let the Kindle 2 and the Kindle DX 2 be ignored. Why aren’t all the software improvements in Kindle 3 added to these devices yet? It’s over a year since Kindle 3 came out.
  5. Amazon has assumed that its ‘devotion to reading’ means it can get careless in other areas.
  6. Amazon hasn’t responded to the colossal threat of the Nook Color.
  7. Amazon has become complacent with the Kindle App Store. It was in Beta in January 2011 and it’s in Beta in June 2012.
  8. Amazon is trying to find shortcuts – Building an Amazon Android App Store is potentially a good one; Depending on Apple for casual readers is potentially a bad one. Shortcuts don’t really work in the long-term.
  9. It had, at some level, assumed that B&N would just die and disappear. It didn’t plan for the contingency that B&N would find hidden reserves of strength.
  10. It had, at some level, assumed the fight was over. It had also assumed that the fight wouldn’t morph into something else (for example, Reading Tablets vs eReaders). Basically, Amazon was 100% unprepared for the Nook Color.
  11. It’s acting with the belief that incremental improvement by itself (without major leaps forward) is enough.
  12. Amazon is cutting ties with affiliates in various states even though B&N and Google are both making a major affiliate push. This is going to become critical down the line because websites will start sending people to Google to buy books (instead of to Amazon).

While there is still a lot that Amazon is doing right, it is making a lot of mistakes. All of the mistakes stem from the same thing – The complacency engendered by a feeling that the battle was won once Kindle 3 was released.

Amazon, quite frankly, expected/hoped Kindle 3 would be a death blow for B&N and Sony and would end the eReader Wars. It didn’t because Nook Color saved B&N and gave B&N the belief to launch Nook 2.

Why would you slow down when you’re ahead?

Amazon had the Kindle 3, it had all the momentum, and it had a fledgling Kindle App Store that it could have potentially turned into the sort of advantage that made the iPhone a monster and made Facebook the defining social network.

Instead, it’s done little in the last 1 year. It makes no sense – All it had to do is push hard and hit $100 last Holiday Season and release a Kindle Tablet last holiday season and release a Kindle 4 in February 2011. It would have extended its lead and pretty much wiped out B&N.

Now it’s created a monster – A B&N that is hardened from the pains of near-bankruptcy and battle-tested from its experience of surviving as the fringe #2/#3 eReader maker. Kobo too is turning into a little Godzilla with its ridiculous ability to keep up with billion dollar companies.

How could Kobo come this close to Kindle?

At this early stage of my experience with Kobo Touch and Nook Touch, there’s a very simple question I couldn’t answer –

Is Kindle at least better than one of them?

That’s a scary thought. Both Nook and Kobo have pulled so close to the Kindle that you can’t tell in 15 to 20 minutes which is the best eReader. That means – Everyone making the Kindle vs Nook vs Kobo purchase decision will be confused.

How can the clear #1 eReader company let the #2 company beat it? How can it let the #4 company pull so close?

When Publishers brought out the Agency Model and killed Amazon’s ability to compete on book prices – It should have focused on every other area and won all those battles. It hasn’t and we’re beginning to see the consequences.

Where is the Kindle Book Deals section?

Kobo hands out coupons like its Groupon. B&N has a clear section for Bargain Books. Amazon has done only two things – run a Sunshine Deals promotion in June and run a short-lived Kindle Deal of the Day promotion in January.

That’s just not enough. If Publishers have taken away your ability to cut prices, then at least build up a deals section and compensate to an extent.

Incremental Improvement cannot beat Leaps in Technology and Thinking

You could joke that the only reason Kindle doesn’t have touch yet is that there was no incremental way to get to a touch screen from the Kindle 3. Except – it probably is the real reason Amazon never added in touch.

You improve every area of the Kindle 10% and it adds up to a big gain. The problem is that there’s a competitor who improved its device’s user interface 100% by replacing a kooky eInk-LCD dual screen design with a simple touch eInk screen. It then improved its battery life 100%. Add up a few big jumps like these and 10% incremental improvements can’t compete.

At some point Amazon needs to add huge jumps. Things like Color and Touch and full-blown features – as opposed to 15% better this and 20% better that.

How difficult is it to make Custom Screensavers?

The two biggest pain points for Kindle owners (apart from the really big stuff) have been Folders and Custom Screensavers. Amazon took 2 years to add Folders and still hasn’t added custom screensavers.

Even Kobo Touch beats the Kindle’s Dead Authors Society by using the book cover as the screensaver.

How many more warning signs does Amazon need?

Here are a few –

  1. August/September 2010 – Sony releases the IR touch powered new Sony Reader.
  2. December 2010 – Nook Color comes out and creates the Reading Tablet market. Selling nearly a million units a month.
  3. January 2011 – Both B&N and Kobo start talking about 1 million+ customers and 1 million+ books sold in a day.
  4. Early 2011 – Apple does its whole ‘pay us 30%’ dance.
  5. June 2011 – Consumer Reports gives Nook Touch its Editor’s Choice Award.
  6. June 2011 – Kobo, a small start-up, releases a touchscreen eReader before Amazon.
  7. June 2011 – In 2 months Nook App Store is up to 254 apps.

The warning signs are coming up faster and faster. Whatever room for complacency Amazon earned with the release of the Kindle 3 – it disappeared long ago (in 2010 itself). Now Amazon is just surviving on momentum. It’s probably got 6 months left to turn things around. If Nook Color 2 is as impressive as Nook Color (and as much of a jump), and if iPad 3 launches in October, then Kindle Tablet won’t have the ‘guaranteed hit’ Christmas Season Amazon is probably counting on.

Most interesting is what Kindle vs Nook will look like for the rest of 2011. Firstly, it’s now Kindle vs Nook vs Kobo – which should be very worrying for Amazon. Secondly, Amazon is no longer a clear 1st choice – It isn’t even the 1st choice. If Amazon doesn’t have a Kindle 4 lined up for second half of 2011 then $99 might be its only savior.

Is Apple about to kick out Kindle App and Nook App?

The Kindle has had a strong ally in the Kindle iPad/iPhone reading app.

In fact, some estimates and surveys claim that 40% of books bought for the iPad are through the Kindle for iPad app.

Well, Apple might be getting tired of that.

Sony’s iPhone eBook App gets rejected

Courtesy Peter Craine at the official Kindle forum we find out that Sony’s iPhone app just got rejected –

Tuesday’s New York Times reports, “The company [Apple] has told some applications developers, including Sony, that they can no longer sell content, like e-books, within their apps, or let customers have access to purchases they have made outside the App Store.

“Apple rejected Sony’s iPhone application, which would have let people buy and read e-books bought from the Sony Reader Store…

Wow. That’s a really big move by Apple.

Details on Apple’s new Rules

The New York Times has the details on Apple’s new approach to eBook Apps.

  1. It seems that ebooks bought outside the app store will not be allowed into apps. 
  2. Sony’s iPhone App has definitely been rejected.
  3. Apple has said that all in-app purchases will have to go through Apple.
  4. NY Times points out that Amazon might get affected.
  5. Analysts think this shift suggests Apple wants to make more money from its platform.

    “This sudden shift perhaps tells you something about Apple’s understanding of the value of its platform,” said James L. McQuivey, a consumer electronics analyst at Forrester Research.

    “Apple started making money with devices. Maybe the new thing that everyone recognizes is the unit of economic value is the platform, not the device.”

This is nothing short of a disaster for Amazon and B&N. Both are seeing very healthy ebook sales through their reading apps. A large portion of that is sales through iPhones and iPads. If those disappear, or begin to get taxed, it would be really tough for B&N and Amazon to profit from ebooks sold to iOwners.

Why would Apple do this now?

Three possibilities spring to mind –

  1. Apple was only allowing these ebook reading apps to sell iPads. Now it feels iPad is powerful enough to stand on its own. 
  2. Apple is getting serious about iBooks and wants to turn it into a solid revenue stream. It probably feels that iBooks can’t take off until Kindle and Nook apps are handicapped.
  3. Apple really does intend for iPad 2 to be more of an eReader/Reading Tablet. It wants to make sure that reading apps from other companies can’t piggyback on iPad 2.

Whatever the reason for Apple’s new stance, it’s a rude awakening for Amazon and B&N. A painful lesson that if you don’t control the device, you can get kicked out at a moment’s notice.

What could Amazon and B&N do?

Perhaps they could offer Apple a 10% cut. Perhaps they could put more energy into Reading Tablets – B&N is already doing this with Nook Color. Perhaps they could stir up readers, and get them to protest – though that is unlikely to work.

There’s not very much Amazon or B&N can do. They are at the mercy of Apple.

If Apple really does force Kindle and Nook Reading Apps to pay a toll, it’ll prove, once again, that there is no such thing as a free lunch. That you have to build your own direct channels to customers.

The Book Wars have well and truly begun.