Amazon Makes It Clear It Will Survive iPadmania

This is a phenomenal week to be covering the publishing industry. Tuesday, Apple released its quarterly earnings. Big surprise, another record-breaking quarter for the folks in Cupertino. A few billion here, a few billion there, blah, blah. How amazing is it that we're not really surprised by such overperformance in an otherwise still-troubling economic environment? Of great interest to me, the eReader guy, was the final iPad tally for the quarter ending June 26th: 3.27 million units worldwide. Still no good guidance on what the US split is, but no matter how you slice it, iPads are hot. (And, no, I still have not bought one, still holding out for iPad 2.0).

And if you follow the implications of that success, as many in the media have, Amazon should just concede the eReader business, pack up its cream-colored Kindle and go home, right? 

Wrong. And to prove it, Amazon made a point of announcing some news of its own, the day before Apple's results were public. Amazon flaunted its own success in selling both Kindle devices and eBooks. That's right, despite that iPad upstart, the Kindle is still flying off the shelves, selling more units each month than the month before it all through Q2, when the iPad challenger was supposedly pummeling it. And it's dominating the eBook business as well, selling as much as eight in ten of the eBooks of major bestsellers, seeing its eBook sales rate triple over last year. Oh, and Amazon indicated it sells 1.8 eBooks for every hardback book it sells. That's right, even though it discounts hardbacks to paperback prices for many bestsellers.

Yep, business seems to be going just fine for Amazon. How can this be? It's very simple. Amazon has only barely begun to penetrate the one-fifth of online adults that read more than two books a month. These people love books enough to want a device optimized to provide the ideal digital reading experience, including finding, buying, carrying, and reading books. That device is the Kindle. And at a newly slimmed-down $189, the Kindle is killer affordable. 

We're so confident of the long ramp Amazon still has ahead of it that our latest eReader forecast shows that for at least the next year, eReaders of all flavors will outnumber iPads in the US. (Forrester clients can click here to see my latest report, published today, which includes a summary of the forecast and a data dive into a survey of more than 4,000 people about which devices they want most; quick tease here -- more people want to buy an eReader of any kind than want to buy an iPad this year though the iPad has more likely buyers than any one single eReader. See the report for more detail.)  However, by the time we enter 2012, tablet PCs like the iPad will surpass eReaders. At that point, a healthy 15.5 million adults in the US will own an eReader. And the number will continue to climb, though slowly compared to tablet PC growth. By 2015, we see the eReader market starting to cap at just under 30 million US adults. That's nearly all the people who read 2+ books a month. 

At that point, many bargain eReaders will cost just $49 and some of the best will cost only $99 -- a price point we believe some Amazon competitors may toy with as soon as this holiday season, especially for bare bones models like the Sony Pocket Reader. One reason that prices will be so low is that by 2015, tablet PCs will compete more directly with high-end eReaders -- they'll have reflective displays capable of color at very low power consumption rates. This will make the distinction between high-end eReaders and low-end tablets nonexistent. 

At that point, you'll likely own several devices capable of reading books from any number of booksellers including Amazon, Apple, Barnes & Noble and even Sony. But will you buy from all of them? No, you won't. You'll have your favorite eBook seller, just like you have your favorite paper book retailer today. And that's why Amazon is working so hard to remind us that this game isn't over yet. That for a bookseller, this game isn't even about which devices ultimately sell. It's about which bookseller captures the customer today for the long run. 

Amazon intends to be that bookseller.


James, I think you're spot on

James, I think you're spot on with this analysis. Ultimately consumers won't want books tied to a device, but a platform (if it has to be tied to anything at all, that is) and that's where Amazon has an advantage. I'm a voracious reader and have been reading e-books since 2003. You'd think that when the Kindle arrived, I would have jumped all over it, but I didn't. Instead, I waited a full year and bought a Kindle 2 - not because the hardware was better (although that helped the decision process) but because that's when Amazon outed Kindle for iPhone. Now that I've jumped ship to Android, I can read my Kindle content there as well. And for this reason, as much as I love my iPad, I haven't bought a title from Apple's iBook store. The universality of the Kindle platform is a key differentiator now and in the future.

I was an early Kindle

I was an early Kindle adopter, which I don't regret (I've gotten years of good service out of it), but the iPhone 4, of all things, is starting to win me over to the idea that all-in-one devices can be great reading devices. While size is a constraint with the iPhone 4, it leads me to believe that LCD displays with sufficient pixel density are fantastic for long form reading. The iPad isn't quite there yet, but my bet is that it will be within the next two iterations. If this is the case, I think the e-reader will be just as niche as the stand-alone MP3 player has become.

Moreover, I think Amazon will see some disruptive competition on the content side in the near future. When tablet screens are good enough for even picky readers, we have to admit that piracy becomes a competitive danger. Unlike music and movies, complete books can easily and quickly be e-mailed between readers. Books are tiny, data-wise. I also expect Google to be a fierce competitor, especially if they offer web-based apps for reading a book across several devices.

Sold my Kindle

I forgot to mention this in my earlier response, and Eric's comment reminded me: as much as I loved my Kindle 2, I sold it the day after the iPad came out thanks to the Kindle software for iPad. The reading experience on eInk was better overall, but I look at an LCD screen all day and my eyes are no worse for wear, so I went iPad even though I still buy all of my content through Amazon.

Sticky buyers

Two questions:

1. Do you believe that ultimately ebooks will be primary consumed in a vendor-agnostic format, such as PDF is today (well not quite agnostic, but now an open standard with lots of 3rd-party support)?

2. If that occurs (obviously I believe it will) then the challenge for Amazon reverts to the shopping experience. Amazon's remains the best, but others pull closer.

What else would keep Amazon as the #1 ebook retailer?


My answer

Thad, good questions, I would suggest that the reason Amazon invested in the eReader space in the first place was to make sure that a vendor-agnostic format does not succeed. Publishers don't want it to happen (no effective DRM on such formats), and Amazon certainly doesn't want it to. So there would have to be significant reason for publishers to shift their thinking toward an open platform.
Even if what you suggest happens, we will be in a situation where Amazon's long history of comments, ratings, and algorithms to guide you to better books will give them an advantage in the long run. The one chink in their armor is the lack of effective integration of social connections. If somebody can beat Amazon at that, they have a shot at taking the business away. It certainly won't be Apple, if their past neglect of social influences is representative of future actions.

RE: Sticky Buyers

Very interesting...had not thought about the social angle. I just signed up on ("a community of 1,000,000 book lovers"). This site links in to Amazon, but I don't think the sentiment is reciprocated.

Amazon provides some good social features within its site, but I'm sure you're correct that an interface to Facebook, Twitter, etc. is essential.


Apple taking us backwards

eInk remains what of the premier new technologies of the 21st century. And while Amazon is busy innovating, Apple is binding consumers into its tightly woven ecosphere and sending users backwards, to oh-so-awful for reading LCD panel technology. Been there, done that, so 12 years ago.

Strongly disagree

I don't follow this at all. Amazon never gives raw numbers, so we don't know how many kindles are in the wild. (amzn telling us that it sold tk percent more today than yesterday is useless info for suckers; give me a real number for a base line.)

As for the surge in books sold via the kindle store, that's because nearly 4 million people bought an iPod and are downloading kindle books to it like crazy.

So why do you think monochrome "e-readers" have a chance going forward? And keep in mind we haven't seen tablets firm HP, Asus or Acer yet... "e-readers" found a small, luddite market, but they're a curiosity, not a mass market.