Yesterday, Amazon launched its larger-format Kindle DX with a built-in PDF reader and partnership deals with textbook and newspaper companies. Today, Wall Street analysts are weighing in on what kind of impact the DX might have on Amazon’s numbers. Barclay Capital’s Doug Anmuth estimates that the DX alone could add $800 million in revenues and $100 million in gross profits in 2012. Total Kindle revenues in that year for both the smaller Kindle 2 and the Kindle DX will be be $3.7 billion, he estimates, with gross profits of $840 million. In three years time, he thinks the Kindle will represent more than 10 percent of both Amazon’s sales and gross profits (for perspective, last year Amazon reported $19 billion in sales and $4.3 billion in gross profits).
Meanwhile, Citi analyst Mark Mahaney for now is sticking with his 2010 projection of $1.2 billion in Kindle sales, which would account for over 4 percent of the total—that is next year. Mahaney isn’t going out further than that yet, but he may soon “up that estimate a bit,” he wrote in a note this morning. Why? One reason is because Amazon CEO Jeff Bezos threw out a tantalizing detail yesterday about the Kindle’s growing traction: For the books available on the Kindle, unit sales are tracking at 35 percent the level of the same titles in print, up from 13 percent in February.
Mahaney estimates that the Kindle already accounts for “about 10% of total North American book units,” or or 4 million books sold during the first quarter out of a total of 38 million books, he tells me. Those 4 million Kindle books equated to an estimated $34 million in revenues during the quarter (which doesn’t include sales of the Kindle device itself) and added 2 to 3 percent to Amazon’s growth in media revenues for North America. Mahaney also thinks that the 35 percent sales figure suggests that Kindle owners are buying two books per month on the Kindle.
Obviously, these are hardcore book readers, and that level of sales won’t stay so high as the Kindle is used by more and more people beyond the early adopters (who in this case are tech-savvy bookworms). But the Kindle DX hints at a broader strategy. It is purpose built for the educational market—students who don’t want to lug around heavy textbooks and can buy cheaper versions on the Kindle. (What would be really interesting would be a textbook subscription that gives students access to all of their books each semester, with an upgrade option to buy chapters or entire books if they want to keep them beyond that time period. But I digress).
Surely, the Kindle DX is not the last Kindle in the pipeline. Amazon will keep rolling out upgrades and offshoots designed to appeal to different readers. For instance, the DX isn’t perfect for magazines and newspapers. You really want a color screen for anything with photos and illustrations. But electronic ink technology is moving in that direction, and then there is the prospect of a larger iPod Touch that would be perfect as both a Web tablet and an electronic reader.
Already, Amazon has a Kindle app for the iPhone/iPod Touch. Despite the small size, I prefer it to the still-clunky Kindle just because I carry my iPhone with me all the time. I’d much rather read a book on an IPod Tablet than on a Kindle DX. And you know what? Amazon doesn’t care because it is not in this to sell Kindles. It is in this to sell digital books, which have much higher margins than either paper books or the Kindle devices. Amazon could (and should) just as easily make a Kindle app for Android (especially with Android Netbooks coming out), Blackberry, Palm, and Windows Mobile.
So how big can the Kindle get? It’s not about the device, it’s about the software. The only limit to how big it can get is the speed with which people can become comfortable reading books on screens.
I think I’m an idiot because I don’t see any need for this device at its price point. The only thing I can see it being useful is as an early technology that will pave the way for cheaper, more widespread stuff.
I’m a big fan of the K2 though, but had no idea how successful its been.
I don’t see how big this Kindle market can get. Why do you need a Kindle over a laptop or a netbook?
Can’t you listen to music from the netbook/laptop instead of buying an iPod too?
This represents a larger change than just the hardware alone, the hardware is what enables their platform to work, it isn’t the sole focus on their project.
Specifically, they saw that ebooks just didn’t work. People weren’t buying them for many reasons. I don’t know all the reasons, but it didn’t work because it’s not a physical book like people are used to, it isn’t comfortable to read on a computer screen for hours and hours, and it requires your computer to be working fine. You can run into issues like software problems, battery problems, laptop getting very hot, screen brightness, etc., the list goes on and on.
This device is meant to be simpler – no setting up network connections, no battery issues (for a week or something, I think), no software problems, etc., it’s a single function device, like the iPod.
The power of this great hardware though, is in the software. At your fingertips, wherever you are, you’ll have access to all the books you could want to read, and over time, all the newspapers, magazines, and anything else you want to read.
Jeff Bezos gave a great analogy for why people will change from books, which have evolved for hundreds of years, to this: “People loved their horses, but when the car came around, people didn’t continue riding their horses to work, they got a car.” That’s not a word for word quote, but basically, the change will happen because it makes sense. It won’t replace books entirely, but it will do things that books wouldn’t let you do either.
The hardest task I see for this won’t be the hardware, but getting people to change their habits, especially at the college level where the textbook industry has a strong hold on everything. Schools publish “custom edition” versions of textbooks, which is usually nothing more than a portion of the chapters from the real book, and then the chapters are placed in a different order. Oh, and sometimes the problems for homework assignments are in a different order too, just so students have to use it. By doing this, the school collects more money because their name is on the book, and they can avoid raising tuition. Instead of increasing tuition, they just make more custom editions. Economically, it’s better to just give money straight to the school than play these games.
If Amazon can get over the hurdle of moving schools over to this new platform, this could be one of the greatest advancements of the decade.
the ground work to overcome this inertia by the school is already started. while it will take a while to succeed, it’s starting.
you’d be surprised by the number of faculty who really do give a damn regarding the cost of the textbooks that the students are having to pay…
and yeah.. the idea of electronic books (as well as used books) that bypass the college bookstore are going to upset some of the current business practices at some colleges…
You’re right, and I was a bit surprised by this. I was talking to an economics professor, and he was asked to change the textbook because some of the things in it were proven wrong over the past 2 years in our economy. He denied it because then the value of the textbooks that the students had already purchased would fall a lot, and he didn’t want them to suffer. My jaw dropped when I heard him say that…
erick…
in order for amazon to get where you’d like them to be in the college educational market. they’re going to have to become in essence, a textbook publisher.
this process will then allow amazon to deal direclty with the authors, setup the required peer review process, and at the same time, allow the book/content to be distributed to whoever, in whatever format is required. (this would then satisfy the faculty who would fight like hell to be locked in to a specific device)
this step/process would completely eleminate any concern from the gov’t regarding any possible anti-trust issues…
this strategy would also face amazon in a match between the existing college textbok publishers. but if the kindle achieves the growth you’re hoping for, the existing publishers won’t complain… (other than they’ll have to deal with a formidable competitor)
peace
The idea of a proprietary giant ebook reader is bad. It will generate profit as long as they can get a lock on the content. They essentially see Kindle as an iPod for books. The problem is that the delivery is worse, not better. Black and white? Another clunker to carry around? I think that $500 for that thing is absurd. The same idea can be accomplished with software and existing laptop computers. Why not just emulate the Kindle and save the hardware expense? Also, I love how they bent over backward for the Author’s Guild with their text to speech feature. That was the only attribute that made it worthwhile imo.
i would agree that the idea of a proprietary reader is the wrong way to go…
except the college textbook market isn’t, nor would it be proprietary.
i argued that amazon could become a publisher of textbooks, and then dominate the market of college textbooks for the kendall. theirs nothing to stop other publishers from making their books available to the system, except the cost to play on the kindle would essentially fund amazon…
and as it is, content can only be downloaded to the kendall if it goes through amazon anyway…
but if amazon went after the textbook market as a publisher, it would kill the other textbook publishing companies…
What would make the Kindle take off would be the ability to display PDF or XPS for documents with color. This would reach more people who are on the face of whether to buy or not.
Would it? Is color really all that important? I used to think this was a big deal till I got my first black and white laser printer, I realized I didn’t really care to have color on these things.
For textbooks, yes, color is very important. Try, for example, figuring out a political map in a geography text book in grayscale, or an anatomical drawing. Print (and websites for now) still have the advantage here.
Erick is obviously not a big reader since he prefers to read on the LCD screen Touch over the e-ink screen Kindle. So I don’t believe he’s really in Amazon’s target audience.
totally agreed. bezos in a recent interview w/charlie rose, really explained the issues around having light shining in your eyes as in lcd screens vs. e-ink. for readers, the latter is “not just good, but good for you”
amazon is working on a color device but he expects that it’s still 3-4 yrs out to get the price down. it’s already available in the lab (color e-ink, how cool).
I don’t believe these numbers, ok? Its fantasy land, ok? Amazon wants us to believe that 3 of every 10 titles sold are through kindle? No way. Anyhow, this is a battle that Amazon will lose, ok? They are not an electronics product company, and so will screw this one up. Such is the word of Sanjay.
OK
OK man… not cool down.
The problem is that most people still haven’t seen e-ink, and “don’t want to read on a screen”. Amazon should be advertising the hell out of the fact that it’s not “reading on a screen” as most people know it.
I’ve got a Sony Reader, and while I hate reading on my computer, the Reader is actually easier on my eyes than a book.
“For the books available on the Kindle, unit sales are tracking at 35 percent the level of the same titles in print, up from 13 percent in February.”
given this stat, why should amazon advertise any more than they have, seems like their managing growth just fine and not disappointing people. smart growth.
Pretty big?
Well, I guess that I am a conservative moron, but I still love the smell of books too much to even think about buying this thing. The material aspect of books themselves make them something sensual that a screen could only barely emulate.
I also like to read books with a pen, to make annotations on it – maybe with a pen like the Nintendo DS?
smell and toch of a book is nice
but I read on my 1h commute in Tokyo trains, that’s approx. 1 book per week, I really wish I could have a Kindle here in Japan and stop having all these amazon deliveries all the time
And you know what? Amazon doesn’t care because it is not in this to sell Kindles. It is in this to sell digital books, which have much higher margins than either paper books or the Kindle devices.
I think eventually this could be true, but Publishers seem hesitant to go down this path. E-books are completely shaking up the publishing industry, they are scared, and they seem reluctant to reformat their entire distribution model until their hand is forced.
Nobody is going to buy through Amazon if they produce their own reader. Amazon has to own both the reader and the distribution platform, ala Apple and iTunes.
This is a hugely defensive move by Amazon, who sees the market for printed books disappearing in the coming years. They are now desperately trying to become the iTunes of books. Unfortunately for Amazon, they are no Apple. Such is the word of Sanjay.
You’re funny.
I know. Such is the word of Sanjay.
ok
Won’t the book publishers who’ve been fleecing the student population fight this tooth and nail?
How else can they print the “Xth Edition” that corrects a couple typos with 15% price increase?
I’m not touching this Kindle crap until it has a color screen, zero DRM, a reasonable price, and digital books that don’t cost more than a paperback. And it had better have comfy, ergonomic design. I agree with the first commenter that its only use is as a technology nursery. Kindle right now is like Beta-Max or 8-track.
Good analysis, but with billions of netbooks coming out over the next few years of a similar size, one wonders whether even Kindle software on netbooks will stem the obvious question: why do we need Amazon to be the sole major ebook seller? I agree that $AMZN revs will jump with Kindle, but the book industry as a whole is wasting time with proprietary software/hardware containers when it could be investing in making ebooks more viral, open to collaborative sharing and enhancement and in doing so maximizing revenues.
I’m sorry, but I really don’t see this pushing forward in the education corner. You can’t possibly replicate studying with a pile of books, often MANY of them open simultaneously cross referencing.
It looks handy for newspaper/magazine/subscription based reading though.
Call me old fashioned, and I’m only 28, but I prefer a physical book.
I just don’t get it? I haven’t seen one, which is an issue as I don’t want to buy something like this when I can’t touch it, and why would I carry this around with my laptop? I guess maybe people would take this instead of a book, but if I have my laptop on trips why take both?
Maybe using one is amazing, but unless it like the iPhone display then not interested. When or if Apple comes out with a tablet then that I would be interested in.
Does this thing have wifi?
Many of the comments here seem to be from people who have never used an e-Ink device, and so really don’t know what they are talking about.
I have a Sony, and love it–although it is not the “ebook” that I want to buy. Many of the features of the Kindle will eventually find their way into other devices, but there needs to be a total rethinking of the ebook paradigm too, which doesn’t seem to be going on with this current generation of devices.
e-Ink is great! It is almost impossible to tell the difference, once you have started to read on it as a primary reading source.
The comments about netbooks being more compelling alternatives is worthy of discussion, but ultimately there are differences between a laptop and an ebook reader. One is weight, and the other is power consumption. While my Sony’s battery doesn’t last as long as I would like, it is hard to believe that a netbook would last longer.
I find my Sony to be a part of my research/reading environment, and as such I am free to travel away from my Laptop. I now have about 1000 books and papers on my Sony, with the duo-Pro slot empty (which would hold thousands more books and papers).
Price is clearly a problem. But prices do come down. Anybody remember how expensive cell phones were when they first hit the market in the mid-80s? Well, as they were generally adopted, down came the price to $$0.0 in many cases.
When the Plastic Logic device hits the market, there might be some competition, although they have been talking about prices even higher than Amazon’s in their early press releases.
Next Generation of E-book Readers:
http://www.yout...re=channel_page
Personally, I can’t wait for this next generation of ebook readers to hit the market. There are so many possibilities that it boggles the mind.
@wayne, don’t you think that next gen netbooks will benefit from these same advances, and thus make ebooks obsolete?
Possibly. But form factor and battery life are going to favor e-books where the goal is reading books.
When I bought my Sony, I was toying with buying a Netbook instead. I had a lot of reading and writing to do, so the Netbook seemed like a good idea. I’m glad I bought the Sony because reading away from a Laptop has been more important to me. At some point that will change.
The One-Child-Per-Laptop has a form factor that supports the device’s being both a PC and a reader.
Once the price of a basic reader gets down into the sub-$99 range, there won’t be much to argue about.
boggles the mind eh?
are you a simpleton or something?
No jason .. just excited.
@jason, I am boggled that you bothered to briefly bay at our friend’s boasting of being bountifully boggled. Such is the word of Sanjay.
If it’s made of plastic, not glass, full color, black on white print, high resoltion, light and thin, touchscreen, and it sells for $200, then it could be really big.
Until Amazon stops charging $9.99 / mo for what is essentially free content across the web – it is hard to imagine enough purchases of the $500 unit
I agree that Amazon is in this to sell the books, rather than the device itself. What I can’t figure out is then why then don’t they seem to understand the age-old consumer electronics principle of subsidizing the box in order make up for it on the volume of media? It’s the old razor and razor blades model. I understand the price will be high at first, but $500 just seems too much up front, even at launch. I’m not sure the Kindle has the sexiness factor of an iPhone or a PS3. Even then, those two devices are case studies in why even the coolest technology HAS to get to mass-market price points quickly.
I think they’re going to have to significantly cut the price in a matter of months like Apple did (even at the cost of angering early adopters). If they wait too long, like Sony did, they’ll be in trouble, watching others — maybe even Apple — taking off with their market.
How are these analysts getting these numbers?? Nothing Amazon has said to date provides any real clarity about Kindle’s bottom line impact (at least that I have seen). To even suggest forecasts by analysts are accurate given figures to date…
35% means what??? Incremental sales, or sales cannibalizing books sales Amazon would normally realize. What are margins of former relative to latter?? Huge issues, and the silence on this strongly suggests to me much more cannibalization than they would like.
iSupply’s breakdown of Kindle 2 gives about a 50% margin. Times how many units though?? Amazon has not said anything definitive other than “…exceeded out most optimistic projections.”
NetFlix is giving investors plenty of transparency about how Instant Play is affecting both disk shipments and margins.
Apple has been amazingly transparent about iPhone.
These companies obviously believe they are well situated in a game changing play, and want investors to know about it.
Amazon’s circumspect statements about Kindle’s success suggest there is more sizzle than steak at this point.
I am not flaming against Amazon. IMHO it is one of the best run tech companies today, and I hope it finds disruptive plays in the text book market which is currently out of control.
However, discount Kindle’s hype until Amazon makes clear statements that support assessments of its financial impacts.
As Mike Brothers noted immediately above: Why, if the Kindle book sales (the blades) are such good business, why is Amazon not selling Kindle (the razor) with very small margins?? (Note that iSupply can not account for licensing, warranty, etc.)
Amazon is focusing on the whole supply chain rather than 1 piece.. I see amazon emerging as the Apple for books.. give it 4 years
I think Amazon should look more into applying Kindle DX to the business environment. So many companies use huge amounts of paper for printing out huge docs for discussion in meetings and other situations like that where it is totally unnecessary.
Imagine if they just gave everyone in a company a Kindle DX? Maybe it doesn’t have the security features yet for business, but this area would have a lot of potential for them.
The price pint will hamper adoption. Might as well get a netbook or the highly anticipated CrunchPad for that kind of money.
‘I’d much rather read a book on an IPod Tablet than on a Kindle DX.’
which one of these devices have you tried and tested?
fail
If they want to compete with Plastic Logic, they’ll need to get much, much bigger than the DX
As a current medical student who has found that pirating of medical textbooks as pdf files is increasingly common – especially in low-income countries where the price of the real book is prohibitive – I wonder how long until the Kindle PDF viewer is used much like the iPod: as a means for making pirated content more usable.
Any idea about the availabilety in Europe?
First netbooks. I own one. It’s great for traveling because I don’t have to haul around a full size laptop to stay connected. I don’t plan to ever read books on it. It would be a contest on which died first– the battery or my eyes.
Second, on costs– from what I hear, it currently costs Amazon $200 bucks a pop to make a Kindle. And that’s purely the hardware, without any cost for the Whispernet, which Amazon pays Sprint for. When you add in marketing costs. they really are not making a huge amount per Kindle. And one reason they don’t want to lose money or just break even is because once you have one, you can get a lot of free books. I have probably 160 books and short stories on my Kindle, and I paid for (I’m guessing here) 20 of them. One of the books I bought came from Fictionwise, which offers a “Send to your Kindle” option (you have to white-list their email with Amazon and pay Amazon 15 cents a book to make it work). If I weren’t too lazy, I could convert all the free ebooks using a different email converter and then cable them to my Kindle, but I would rather pay the (now) 15 cent per MB to send them the easy way.
Third, I don’t think eReaders are going to replace print books any time soon, but their market share is growing. Amazon is trying to stay ahead of the curve. I think they rushed the announcement about the Kindle DX out because Plastic Logic is breathing down their neck, metaphorically speaking, and they want to be entrenched when it finally gets here. Although frankly, I don’t want to carry around anything that large; like Kindle DX, it’s made for a briefcase, not a purse.
Finally, I don’t think I will ever regret getting a Kindle. It has helped me find time to read more, and that’s always going to be a good thing.
Peace. Read what you lie, how you like. It’s all good.