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 BN.com 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.

Why are eReaders no longer the flavor of the month?

The Kindle is rumored to have sold 8 million units in 2010. You’d think that would make every company on Earth want to manufacture eReaders. Strangely, if CES 2011 is any indicator, most companies seem to have given up on eReaders.

Decline of interest in making eReaders – CES 2010 vs CES 2011

Here’s a post reviewing the eReaders of CES 2010. Here are some of the eReaders shown off last January (with updates on their status in 2011 included) -

  1. Mirasol. Mirasol is the star eReader at CES 2011 – just as it was the star eReader at CES 2010. The first Mirasol device is rumored to be the PocketBook Mirasol and it’s set to debut in Q3, 2011. Note that Mirasol powered eReaders were supposed to launch in 2010 itself – so that Q3, 2011 date isn’t a given.
  2. BeBook with Liquavista Color Display. No mention of it now. 
  3. PixelQi. Notion Ink’s Adam tablet with Pixel Qi display is available – It’s a Tablet rather than an eReader. No other devices with Pixel Qi at CES 2011.
  4. Alex Reader. Arrived and was rather good – didn’t make much impact. 
  5. Entouradge Edge. Arrived and was good but very expensive. Didn’t have much impact.
  6. Copia. Released a social platform instead of an eReader.
  7. MSI Dual Screen eReader. No idea what happened to this.
  8. Cool-er. Bankrupt now.
  9. Bookeen Orizon. No idea what happened to this.
  10. Samsung E6 Reader. This is set to release in the US soon.
  11. Aiptek Story Book.
  12. Fujitsu. Still only in Japan.
  13. Skiff. Closed down.
  14. 20 other generic readers. Most didn’t arrive.
  15. Acer and Asus had plans for eReaders. Morphed into Tablet Plans. Acer does have one eReader+eWriter set to launch in summer of 2011.

CES 2010 was all about eReaders. More importantly, it was about new companies jumping into the eReader market.

Contrast that with CES 2011 -

  1. Hanvon’s color eReader which won’t be released in the US.
  2. The two CES 2010 stars – Mirasol and Pixel Qi.
  3. iRiver’s Story HD.
  4. A few more. Just a few.

From 40 to 50 new eReaders at CES 2010, we’ve gone down to 10 or so at CES 2011. We have almost no new companies trying to release eReaders. Tablets have replaced eReaders as the flavor of the month.

Why has there been such a sharp decline in interest in making eReaders?

For all intents and purposes eReaders are doing great -

  1. Amazon has definitely sold millions of eReaders. It might have sold as many as 8 million eReaders in 2010.
  2. B&N is selling half a million Nook Color reading tablets a month.
  3. B&N has sold millions of Nooks.
  4. Every eBook store and app is talking about ‘millions’ of sales and ‘millions’ of customers.
  5. eBooks are 10% of the market now.

You have to wonder why there were 50 companies jumping into eReaders in January 2010, when just ‘millions’ of eReaders had been sold, and now there are close to zero companies jumping in – even though 10 million or more ereaders have been sold.

Why is everyone shunning the eReader market?

Here are possible reasons -

  1. Companies believe Tablets will kill eReaders.
  2. Companies feel Tablets are a much bigger market than eReaders – that Tablets could become as big as laptops, while eReaders will always be a 10-15 million eReaders sold a year market.
  3. There are not that many companies excited about eReaders – They find tablets more interesting.
  4. With Tablets, companies see an opportunity to compete on price. iPad at $499 means a lot of opportunity for lower priced tablets.
  5. Companies feel Amazon has wrapped up the market. That there’s a small 10 million eReaders a year market, and Amazon has most of it.
  6. They feel the major markets are US and UK, and those are very difficult to get into. With Tablets they feel there is more of an international market.
  7. Companies don’t feel they can compete with the trifecta of Kindle, Kindle Store, and Free WhisperNet.
  8. Companies don’t want to deal with Publishers. Can’t really blame them.
  9. Companies get a free Operating System they can use with their tablets – the ‘optimized for Tablets’ Android Honeycomb. Even more of an opportunity to cut prices. Note that there is no version of Android optimized for eReaders.

Whatever the reason, it’s pretty clear that companies have moved on from eReaders, and are fully focused on tablets in 2011.

Comparative sizes of eReader and Tablet markets

Apple supposedly sold 10 to 12 million Tablets in 2010. There weren’t really any other Tablets in the market.

Sales of 10 million or so iPads in 2010 might mean a lot of different things -

  1. That Apple got most of the market, and the actual market is 15 million Tablets sold a year.
  2. That Apple could barely produce enough to meet demand (as is claimed), and the actual market is 30 million tablets a year.
  3. 10 million iPads sold is just the tip of the iceberg, and the Tablet market is actually 100 million tablets a year.

Companies jumping into the Tablet market seem to believe one of the latter two possibilities.

In the eReader market, Amazon supposedly sold 5 to 8 million Kindles. B&N and Sony sold a million or more eReaders each. B&N sold a million reading tablets. Other eReader makers probably sold 1 or 2 million eReaders.

What might ’10 million eReaders sold in 2010′ mean?

  1. That the eReader market is already stable, and will stay at around 10 million eReaders sold per year.
  2. That the eReader market jumped from 4 million eReaders sold in 2009, to 10 million eReaders sold in 2010. That it will continue to boom, and will reach 20 to 30 million eReaders sold per year before it stabilizes.
  3. That 2010 eReader sales are just the tip of the iceberg, and that the eventual market will be one hundred million eReaders sold per year.

Most companies seem to believe the first possibility. Perhaps they believe 2. but feel they have no chance.

So, for some indecipherable reason, every company dabbling in eReaders has either assumed that eReaders will stop growing, or it has assumed that Amazon and B&N are unbeatable.

That seems rather defeatist.

It makes very little sense – In a year when every eReader company is claiming record sales, all other companies are running away from the eReader market, instead of towards it.

Thoughts on Kindle and Kindle ebook longevity

The Amazon website is down today – Well, to be precise it’s up sometimes and down sometimes. It’s certainly something never experienced before by a lot of Amazon customers.

It presents a good opportunity to wonder about a few other things -

  1. How committed are Amazon to the Kindle? Is it safe to invest in a Kindle?
  2. Is it safe to invest in Kindle eBooks?
  3. What happens if WhisperNet and the Kindle Store go down or Amazon finds them to be unsustainable and closes them down?

These are questions worth asking and they’re definitely worth answering – especially as there are certain people spreading misinformation and trying to scare Kindle owners.

Please note that this post deals with contingency case scenarios. At the moment Amazon is a very healthy, growing company that might end up staying around for 100+ years. They’re basically taking over all of retail and are as unlikely to disappear as WalMart or Microsoft. This isn’t as obvious as it should be because they’re not Silicon Valley or NYC based and they don’t advertise a ton with the press (thus ensuring they don’t get fawning Press Coverage).

Is it safe to invest in Kindle eBooks?

Let’s get this out-of-the-way as it’s very easily solved.

If the unthinkable happens and Amazon goes extinct then you can always use an easily found hack to remove DRM from your Kindle eBooks and get DRM free versions. If there’s ever any doubt about Amazon’s long-term survival or Amazon’s long-term presence in eBooks – Download backup copies of all your Kindle eBooks and save them on your computer.

At the moment Kindle eBooks look like they might turn into a billion dollar business by end 2011. They are also the long-term replacement for Amazon’s physical book business. These factors combine to ensure that Amazon are extremely unlikely to ever leave the ebook business.

There’s a minor chance that Amazon lose badly in eBooks. Even if that were to happen Amazon would not leave. The only possibility of Kindle Store disappearing is if Amazon disappears. In case you want to prepare for that pretty low probability event – simply download all your Kindle eBooks and saved them on a computer and also on a zip/pen drive.

Is it safe to invest in a Kindle?

This is also a relatively straightforward answer.

It’s easy to get distracted by all the Kindle Apps and think Amazon don’t intend to support the Kindle long-term but that’s very far from the truth. Amazon just spent a ton of effort to release Kindle 2.5, they are putting a lot of effort into the Kindle App Store, and they are (if the rumors are true) set to release Kindle 3 in August.

Strategy wise it makes little sense to end the Kindle when it’s the #1 eReader, a device that Amazon controls totally, and also a direct channel to customers. Ending the Kindle would be equivalent to Target closing all its stores and opening up booths in WalMarts. If Amazon ditch the Kindle it would be terrible strategy for the long-term and Amazon always plan out their long-term strategy very well – they are not going to ditch the Kindle.

It’s also worth mentioning that Kindle owners buy all their eBooks from the Kindle Store as no other DRM enabled format works on the Kindle. If Amazon ditch the Kindle they would be left selling ebooks to users on devices which allow readers to buy eBooks from any store.

Consider the question yourself – Would Amazon leave a market in which they are #1 and a market which helps them be the #1 in eBooks?

It’s not very likely. Most arguments that paint a picture of Amazon leaving the eReader market are written by people who either don’t read or don’t realize that Amazon is trying to take its existing billion dollar business in physical books and turn it into two businesses – a billion dollar business in physical books and a billion dollar business in ebooks. The latter is also a hedge against the possibility that physical books become a much smaller market than the current $23.8 billion a year.

The only case in which Amazon would discontinue the Kindle is if it went bankrupt or eBooks died out. The latter is super unlikely to happen. The former is almost as unlikely. If Amazon does go out of business you would be left with a pretty good eReader which you would have to use without WhisperNet and without the Kindle Store. That’s the scenario we’ll look at next.

Kindle without Kindle Store and without WhisperNet

Here we’re considering the case that Amazon has gone bankrupt or killed its Kindle business. You still have your Kindle and you still have your Kindle ebooks (as you were careful enough to save copies on your computer). You are however left without the Kindle Store and without WhisperNet.

Basically, you no longer have Amazon’s store to buy eBooks from and you have no WhisperNet to magically deliver books in 60 seconds.

What would happen?

The lack of a Kindle Store is going to be easily fixed – Companies like B&N and Google will be happy to sell you ebooks without having to buy a new device. They’d probably figure out a firmware update that allows for DRMed ePub. Apple would want you to buy a device of theirs before you could get their ebooks – However, Google is very device-agnostic and B&N is also headed in that direction.

Since this case assumes Amazon has willingly closed down its services or has been forced to it wouldn’t be able to prevent B&N or Google from adding ePub support to the Kindle. In the case that they sell the rights to a completely different company you can be confident that whichever company gets the rights would gladly sell you ebooks.

So you would still be able to get eBooks on your Kindle.

That only leaves WhisperNet. Here, there are two possibilities – First, that a company like B&N steps in and offers you their version of Whispernet. It wouldn’t be very difficult as they’re already doing it for Nook and using AT&T just like Amazon. Second, is that AT&T itself steps in and charges you for wireless access. The latter would be quite painful so you might prefer downloads to your PC from ebook stores instead.

Most ‘Kindle will disappear’ arguments are irrational + There will always be someone willing to step in

The fears that Amazon will die out or Amazon will pass on a billion dollar business that also happens to be the potential future of their billion dollar physical books business are vastly exaggerated. Neither of these is likely to happen in our lifetimes.

Perhaps in 10 or 20 years something happens to Amazon. As we’ve discussed above – we’re still very well covered.

The biggest reason we should all be unconcerned about ‘will Kindle still be around?’ fear mongering is that we’re talking about a $23.8 billion books business. Amazon will be loath to leave ebooks as they might end up being 50% to 75% of this $23.8 billion business. In the rare case that Amazon disappears or leaves the business there will be lots and lots of companies dying to fill the void.

Amazon are very unlikely to disappear from eBooks

If you look around the eReader and eBook landscape you see a lot of companies on shaky ground – B&N suffered a loss and their stock took a hit today, Plastic Logic indefinitely delayed their eReader, and lots of small eReader companies are going bankrupt. There are also a lot of companies that neither need nor care much about books - Apple, Google, etc.

Amazon, however, cares about books – it has to because books are where Amazon got its start and because Amazon has a lot invested in the Kindle. Amazon is also in no risk of going bankrupt – even if the eReader and eBook market grows slowly. Analyst projections for 2014 show Kindle and Kindle Store as just 6% or so of Amazon’s business. That 6% struggling is not going to bankrupt Amazon.

Your Kindle and your Kindle eBooks are very safe – Just keep a backup of your Kindle eBooks and when possible buy from the Kindle Store.

eReaders are made for people who read & the consequences

Let’s start with the first part which seems rather redundant to bring up – eReaders are made for people who read.

However, most people don’t get it.

When a dedicated reading device gets misunderstood

At some cognitive or psychological level people miss out the implications of the ‘dedicated’ and ‘reading’ parts of dedicated reading device.

Here are some of the more frequent complaints -

  1. People who don’t read complaining that it doesn’t play games or doesn’t have color.  
  2. People who are looking for a device that signals they’re cool complaining that it’s not having that effect.  
  3. People who read once in a while complaining that it’s only usable for reading.
  4. People who want the newest gadget surprised because eReaders aren’t anything like what ‘the newest gadget’ ought to be.
  5. People who don’t value its functionality (its specialization for reading) complaining about the price.

They’re basically complaining that the device is dedicated and, worse yet, its dedicated to reading. And apart from the name they didn’t even have a clue that it would be dedicated to reading.

The war between world views

As a direct consequence of eReaders not fitting in with what some people think they should be, we get a rather interesting conflict -

  • A significant number of people and entities, including the Press, are pushing the notion that a dedicated reading device should do more than just read, should not be specialized for reading, and should not cater to people who read books.  
  • They are trying to overwhelm people who do want a dedicated reading device into thinking they should get something else instead.
  • It’s literally an attempt to brainwash people who read books into thinking they should get a device optimized for something other than reading books because that would make people who don’t read more comfortable.

It starts off with people who actually read being reasonable and then at some point it hits you -

The people saying eReaders aren’t cool don’t want a better reading device.

There’s no color, You can’t do anything other than read, It’s too expensive – These are all code phrases.

These people don’t want a reading device at all.

We have a bunch of people who don’t read and would never buy a dedicated reading device trying to impose their world view – they want to design a dedicated reading device.

It’s an amazingly amusing thing – The equivalent of walking three blocks East, picking a random house, and then telling the people who live there it’s all wrong and laying out a new design for them that meets with what you would like your house to be like.

Handling the fact that People refuse to accept these are dedicated reading devices

It’s pretty liberating when you realize that people don’t have a problem with the device itself – they just have a problem with the notion that people like to read and that there exists a dedicated reading device customized for people who like to read.  

These aren’t people criticizing the device. They’re criticizing the existence of the device.

You might argue that it’s a much bigger problem – It’s not. If what these people really want is for us to stop reading then it means we can safely ignore them.

Seeing through the Hype

Owning both an iPhone and iPad puts me in the unenviable position of realizing that neither is made for people who read.

People who argue that these are better than dedicated eReaders are always arguing on grounds that devalue reading i.e.

  1. You can do things other than reading.
  2. They are good enough for reading.
  3. You can get a free app instead of having to buy a device.  

They also always approach things from the ‘we care more about casual readers’ angle -

  1. 85 million people (iPhone and iPod Touch owners) could potentially be convinced to read.  
  2. Those 85 million people are more important than people who actually buy books.  
  3. 500K to 1 million iPad owners are more important because at some point of time there might be tens of millions of iPad owners.
  4. The 4 to 5 million eReader owners don’t matter because all they do is buy dozens of books a year.

It’s a strange argument – Users not interested in reading who might magically decide to start reading are more important than the core readers who are keeping the business running.

Why are both Publishers and Readers buying the Hype?

Actually, they’re not.

Publishers simply see this as an opportunity to slow down eBooks and eReaders and Amazon. That’s why they’re happy to play along.

It’s worth noting that the Press are falling all over themselves pretending the pretend-readers are better than dedicated eReaders because they wrongly believe their future depends on the iPad.

Readers are not falling for it. There are numerous reviews where people who actually read have decided that a device not optimized for reading is, well, not that good for reading.

Imagine that – A device that added in reading as an afterthought is not as good for reading as a device built specifically for reading. Who would have thought it.

The best way to disregard the reading haters and eReader haters

It’s very easy once you realize that they aren’t looking to improve eReaders or to create a better reading device.

If they were they would create a dedicated reading device or talk about one.

They simply are upset that a device focused on reading and focused on people who read is doing so well.

The best way to disregard the eReader criticism (the irrational criticism, not the constructive part) is to realize that the fundamental problem these people have is with reading and not valuing it enough. They don’t want to help us – they simply want us to stop reading and be more like them.

Contrasting two reviews discussing rumored death of the Kindle

For your viewing pleasure we have two reviews this morning. If you’re bored to death of the JesusTablet feel free to skip this post.

BusinessWeek crucifies the Kindle

BusinessWeek just woke up to the fact that they’re Press and thus obligated to predict the death of the Kindle.

First they have analyst Charlie Wolf offer his opinion -

“It’s not a compelling product,” he says of the Kindle, because Apple’s iPad offers more features, such as the ability to play video, plus a more compelling design.

Notice how his reasons have nothing to do with actually reading ebooks. He’s still predicting 2.5 million to 3 million Kindles sold in 2010.

Next we have noted expert analyst Gene Munster (with his patented technology of using the length of lines outside stores to predict sales) offer up his views -

 “No one in their right mind is going to buy a Kindle DX,” says Munster.

Then we have Business Week use this snippet -

Ten percent of prospective buyers said they had considered a Kindle but decided instead to buy an iPad. And 58% of the respondents who already owned Kindles said they planned to stop using them in light of their iPad purchase.

Notice how they forget to mention that the number of respondents who owned Kindles in their survey was just 58. Predictions based on views of 58 owners (given that there are millions of Kindle owners) are not dependable - Just the number of articles pretending that this survey is hugely significant is more than 58.

BW are so impressed by the survey that they actually have a heading for it – Consumers dumping Kindles for iPads.

Mike Shatzkin’s iPad review from a book reader’s perspective

Mike Shatzkin looks at the iPad from the perspective of an ebook reader and he has this to say -

Here’s a quick review of the iPad. I’ve had it for a few days now and, based on what I know so far, it isn’t going to be a very important part of my life.

Thank goodness there’s at least one person who hasn’t had their life completely transformed by the JesusTablet. Well, two.

Further Heresy

 Mike Shatzkin points out that the on-screen keyboard doesn’t cut it -

The keyboard is miles better than one on a phone, but nowhere near as good as one on a laptop or netbook. So it isn’t a substitute for carrying a full-function computer on a trip …

And then the kiss of death -

But as a straight ereading device, it just doesn’t cut it for me.

The extra weight (over a Kindle or an iPhone) just isn’t sufficient compensation for the extra screen capability.

It isn’t as good as the iPhone for reading in bed in the dark because the much more light it throws off makes it harder to avoid annoying your significant other.

For the past two nights have been reading and surfing on the iPad in bed and the weight really is an issue – the iPhone is actually more convenient.

Pointing out some obvious differences between the two Reviews

Perhaps the biggest difference is -

  1. Mike Shatzkin was looking for a device to read ebooks on. 
  2. BusinessWeek were looking for a catchy story to print.

From the Business Week article it’s apparent that the writer hasn’t had the time to actually read a book on each device and compare - She was busy calling up 4 different analysts (they don’t seem to have read books on the Kindle either) and analyze the survey. Notice how all her information is second-hand information – She never actually writes anything about her personal experience.

It’s a colossal joke – A writer who hasn’t actually tried out the devices is asking analysts who haven’t tried out the devices either and they’re shoring it up by assuming a sample of 58 people buying iPads represent all Kindle owners.

You can take any ‘iPad will kill the Kindle’ review/article and you’ll find the exact same things -

  1. They are almost always written by people who haven’t actually read a book on the Kindle.
  2. Even more amusing is that these people usually haven’t even read a book on the iPad. Walt Mossberg is the sole exception.
  3. The focus is always on things other than reading. The logical flow is: Kindle is an eReader -> iPad is really good for watching movies. You can also read books on it. -> Hence the Kindle is dead.
  4. There’s always a survey or an analyst to lend credibility.
  5. There’s lots of mention of reading in the dark and of color.
  6. There’s never any mention of the things that make iPad non-optimal for reading i.e. lack of portability, heavy weight, unreadable in sunlight, and so forth.  

What if the iPad doesn’t kill the Kindle?

The iPad hasn’t sold tens of millions of units (450K to be precise) and there aren’t dozens of amazing killer apps (perhaps not any) making it absolutely essential. Even Macworld writers are ditching the iPad. So it might not be the second coming of a JesusDevice.

There are just 30,000 non-public domain books in the iBooks store. It’s pretty heavy and it’s not readable in sunlight. So the iPad isn’t a better eReader - Is it really going to kill the Kindle because it’s better for watching movies?

On top of that People aren’t buying very many books from the iBooks store. Nothing like Kindle Store on Christmas.

At this point the whole iPad will kill the Kindle hypothesis is based on factors other than reading. You have to admit that makes it rather undependable.

That would mean it’s not outside the realm of possibility that the iPad fails to destroy Kindle and dedicated eReaders. What happens then?

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