Nook is now a $1 billion a year business (sort of)

eReaders are so dead. Not.

It’s always interesting to see how the #2 eReader company is doing.

While analysts are projecting that Kindle might account for 10% or more of Amazon’s revenues soon, B&N provides us with this hard fact (courtesy ZDNet) –

Our overall NOOK business across devices, accessories, and additional content grew to over $250 million in comparable sales across retail at in Q4. That delivered close to 300% growth versus last year.

$250 million a quarter sounds like $1 billion a year to me. Of course, if you’d like to keep your head stuck in the sand you can point to seasonal changes and temporary jumps and price elasticity of demand (who cares it if applies or not – it sounds so cool and intelligent).

B&N is also claiming that it increased its market share in eBooks by 1 to 2 points in Q4 – and that it now has 26% to 27% market share. Not improbable given the success of Nook Color. It also said that it opened over 1 million Nook accounts in Q4 – across Nook Apps and Nook devices.

The big questions are –

  1. Is Kindle a $2 billion a year business already? Surely, if Nook is accounting for $250 million a quarter, then the Kindle must be accounting for a lot more.
  2. How long before Kindle becomes a $1 billion a quarter business?
  3. Does Nook have a shot at becoming a $1 billion a quarter business?

The bigger questions are –

  1. Aren’t dedicated reading devices supposed to be dead?
  2. But everyone says no one reads any more. Could Steve Jobs and the Google Guys be wrong?
  3. How the heck is B&N beating both Apple and Google in the eBook Wars?

Finally, the biggest question –

  1. When will people who don’t read stop predicting the future of reading and eReaders?

Haters gonna Hate. It’s a good thing they aren’t well-read enough to make cogent arguments.

Are $0 ebooks inevitable?

There are quite a few signs that the race to zero is on for ebooks and books –

Hardcovers at $10 and Kindle Editions at less than $10 

  1. The $9.99 price of ebooks put pressure on WalMart and they retaliated with $10 hardcovers (10 of this holiday season’s most anticipated books).
  2. Amazon and Target matched prices. Prices are around $9 at the moment – That’s way less than the $24 suggested price.
  3. Kindle Editions for some of these books are now at $6.72 to compete.

 Advertising Supported eBook Patents

  1. Amazon filed a patent for books with ads in them.
  2. Google is almost certainly going to use advertising in some form to lower book prices.

Google Public Domain Books and Google Books Settlement

  1. Google is giving out a million free public domain books to every eReader company.
  2. The Google Books Settlement (if it goes through) will create a pool of millions of orphan books Google can sell at very cheap prices.
  3. Amazon is retaliating and has increased number of public domain books in Kindle Store from 7,000 or so to 14,000 plus.

As more and more free public domain books become available (which earlier had to be bought or read on an unsuitable PC screen) the value perception for books goes down further.

Free Book Offers

  1. Amazon has 13 free book offers in the last 4 days. These are new books.
  2. B&N yesterday added a page for Free eBooks including new ebooks (same ones as Amazon has, not all of them).
  3. Lots of authors are giving out the first book in a series free. This helps their sales – However, it further reduces the value perception of ebooks.

Independent Authors are desperate and can now give away ebooks for free

  1. Distribution is now easy. 
  2. Cost per copy keeps going down.
  3. Independent Authors are flooding the Internet with free and cheap ebooks.

Independent Authors are so focused on building an audience and being heard they don’t care about the long-term repercussions of giving away their books for free or $1.

Why are Book and eBook companies participating in the race to Zero?

Different reasons –

Amazon – Initially to jump-start ebooks, and now to compete

  1. Amazon used $9.99 to get ebooks jump-started. $10 is not a bad price.
  2. Amazon would prefer $10 ebooks. However, they might not have a choice given Google and WalMart and everyone else are reducing prices.

 Wal-Mart and Physical Stores – Using Books as Loss Leaders

  1. Wal-Mart probably want to get people in store to buy other things.
  2. Perhaps they feel they’ll lose book sales to kindle editions and must compete on price.

eReader companies to sell eReaders

  1. A lot of the smaller eReader companies are happy just to sell the hardware.
  2. They are happy to let the value perception of ebooks go to zero since they either don’t care or don’t think they can match Amazon.
  3. In fact, you could argue that $0 ebooks would help eReader companies sell more eReaders.

Book and eBook Companies – To catch up with Amazon

  1. Amazon have scared everyone.
  2. Google and Barnes & Noble are desperate to catch up with Amazon. They might use low prices to catch up. 
  3. If Amazon starts pulling away Google and other companies might decide to use $0 ebooks to destroy Amazon’s revenue stream.
  4. Some newer ebook companies might push low prices to get a foothold.

A key point worth considering is that eBooks are just one revenue stream for a lot of companies entering the space i.e. these are not publishers or authors.

eBooks are just one of numerous revenue streams

There are lots of revenue streams and models that can be tapped including –  

  1. A model where some books (first in a series, bestsellers) are Loss Leaders and the remaining books generate the actual profits.
  2. eBooks themselves.
  3. eReaders. 
  4. Advertising things in ebooks or at other points in the buying and reading process. 
  5. Using book reading behavior to develop targeted advertising and a profile.

What this means is that a lot of companies will consider ebooks as potentially a loss leader and play around to find a model that suits them best.

To be more precise –

  1. eBook Stores will try to push the notion that the store and buying experience is more important than the book.  
  2. Google will push the notion that search and finding ebooks is more important than the content.
  3. eReader makers might push the notion that the eReader is the actual value.
  4. Different Channels will push the notion that ‘channel’ or ‘where you read’ is more important than what you read.

These are all just companies trying to grab as much of a share as they can.

It’s extremely unfortunate for publishers and authors that pushing ebooks to $0 benefits a lot of these companies.

Are $0 ebooks sustainable?

A lot of authors and publishers are complacent about the dangers because they feel publishing couldn’t exist at lower prices.

Unfortunately it can. It might not be quality – However, it will exist.

How Companies would Survive

  1. Amazon would use $0 ebooks as a loss leader to get people to buy everything from Amazon. 
  2. Amazon and Sony and other eReader companies would go with eReaders as the money makers.  
  3. Google would make money via advertising.
  4. Google would club together their books into subscriptions for businesses and libraries and use that money to subsidize every day readers.  
  5. Companies would get sponsorships for books – Anthropologie sponsors Price and Prejudice and so forth.

Why Would People Still Write?

There’s always the love of writing. However, there would also be a financial carrot being dangled for them.

It’d be very similar to a lottery model or the Apple App Store model –

  1. Top authors and publishers would still earn a lot because of the volumes involved. The top 1%.
  2. Authors and Publishers just below that – the top 5% – would still earn decent amounts.
  3. Everyone else would struggle. However, the promise of huge riches would keep them going.  

Interestingly this sort of situation would give the channels and the companies that control those channels all the power and most of the profits.

They would profit from both the very successful authors and the unsuccessful ones. 

Are $0 ebooks inevitable?


The Internet allows for infinite competition. What that means is –

  1. Every company will try to profit off of eBooks. They’ll end up undercutting each other.
  2. Even if one company wins other companies will do their best to destroy that revenue stream.

We’re seeing relentless competition on both eReader prices and eBook prices.

Most scary for publishers is that –

  1. There are some business models (advertising based, eReader profit focused) where it benefits everyone except authors/publishers to have ebooks at $0.
  2. People are trained by the Internet to expect Free.
  3. It strengthens lots of companies to make ebooks free.

The only possibility for Publishers is to create a Hulu for books or get Government intervention. In every other case Publishers are totally overmatched and $0 ebooks are inevitable.

Guess Hachette is wrong on $9.99, death of hardcovers

Remember Hachette’s paranoia about how ebooks would spell the end of hardcovers, and that $9.99 kindle books would destroy publishers’ profits.

Apparently, reality disagrees.

The BookSeller reports that Hachette’s first-half profits rose a ‘remarkable’ 60%. To be precise they went up by 61.1% to 112 million euros.

Much of it is being ascribed to the success of the Stephanie Meyer saga – in the US, France, UK, and Australia. The same Stephanie Meyer saga that was on the Kindle bestsellers list for under $10 and should have ‘destroyed’ hardcover sales.

Perhaps Publishers are looking at things upside down

For decades Publishers have fought ebooks tooth and nail. While there are significant risks, there are also significant benefits –

  1. Kindle owners tend to buy more books. 
  2. Successful books spread faster and wider.  
  3. No study done on this – However, would not be surprised to find you can finish a book faster on a kindle.
  4. There’s a chance that ebooks will increase total sales and total book revenue and not just cannibalize hardcovers.  
  5. Kindle books have no used book market.  

Publishers haven’t taken any time to think about possible upsides of ebooks.

Increase of the book reading population

How are things different from pre-Kindle days?

  1. We now probably have a million plus Kindles and half a million plus Sony Readers.
  2. We have 3 million ebook readers on the iPhone. 1 million or more of which are on Kindle for iPhone.
  3. We have a much larger range of ebooks.
  4. People with low vision can read.
  5. Features like larger fonts and light weight mean people with arthiritis etc. can read again

More people are being introduced to reading. A lot of people who were locked out of reading have the option to read again. A lot of people are rediscovering their love of reading.

Kindles and eReaders provide benefits that books just couldn’t and expand the places, situations and market for reading.

Next time Hachette Group want to rant about how $9.99 kindle books will kill publishers and spell the end of hardcovers, they ought to check on their profits first.