New Nook, New Positioning?

Are there implications for Barnes & Noble as it prepares to launch its next generation of Nook e-readers? 

Some might say so, especially as Amazon’s new line of Kindles, especially the Fire, seem to be getting traction.

Up to this point, women have tended to be bigger buyers of e-readers than males. Also, Barnes & Noble is emphasizing more toys and goods for children in its retail stores.

The logical implication might be that Nook gets positioned as a device especially useful for families with children.

In the United States,  as recently as August 2011, tablet and eReader owners tended to be male and on the younger side. But according to Nielsen,  this is no longer the case.

In the third quarter of  2010, for example, 62 percent of tablet owners were under the age of 34 and only 10 percent were over the age of 55. 

By the second quarter of  2011, only 46 percent of tablet owners were under the age of 34 and the percentage of those over 55 had increased to 19 percent.

Looking at the data by gender underlines key changes in the e-reader category. Some 61 percent of all e-reader owners are now female, compared to 46 percent in the third quarter of  2010.



Smart phone owners are now evenly split between male and female and tablets remain primarily male. E-reader demographics

Kindle Content Sales Top Book Sales

"After selling millions of third-generation Kindles with the new Pearl e-ink display during the quarter, Kindle books have now overtaken paperback books as the most popular format on Amazon.com," says Jeff Bezos, founder and CEO of Amazon.com.

"Last July we announced that Kindle books had passed hardcovers and predicted that Kindle would surpass paperbacks in the second quarter of this year, so this milestone has come even sooner than we expected, and it's on top of continued growth in paperback sales."

None of that stops some analysts from worrying. A study by market-research firm iSuppli last year estimated the total cost of materials for the 3G Kindle at $155.56, about $33 less than the $189 selling price for the device.

Since iSuppli’s estimates do not include the cost of software, licensing, royalties, manufacturing expenses (Amazon outsources production of the Kindle) and a cut for the wireless carriers, and well are marketing expense, analysts suspect Amazon likely sells the Kindle at a slight loss.

Many analysts assume the Kindle operates on a razor-razorblade model, which is the tactic of selling one good (like razors) at a discount, and a second good that it dependent on it (like razorblades) at a higher price. For Amazon, this would mean selling the Kindle at a discount in order to make money on e-book sales.

Amazon therefore uses the reverse of the model employed by Apple. Apple sells content only so it can boost sales of its devices; Amazon sells hardware only to boost sales of content.

Amazon Media Room: News Release

Amazon Kindle, Apple iPad Lead Reader Race

The e-Reader market has essentially become a two horse race between the Amazon Kindle and the Apple iPad, according to ChangeWave’s latest survey of more than 2,800 consumers.

The Amazon Kindle (47%; down 15-pts) is hanging on to a rapidly diminishing lead over the Apple iPad (32%; up 16-pts) among current e-Reader owners. However, the iPad’s share of the overall market has doubled since the last time ChangeWave surveyed e-Reader owners in August.

ChangeWave Survey - Amazon Kindle vs. Apple iPad

Did The iPad Preemptively Kill The US Tablet Market Like The Kindle & Nook Killed Other Ebook Readers?

The U.S. market for ebook readers is basically a choice between the Kindle or the Nook.

Can you can blame the Apple iPad for that state of affairs? Or is it the business arrangements? Ebook readers, after all, are only as valuable as the selection of available content, pricing and delivery of that content.

It might be more difficult than most of us realize to get all those elements, plus an attractive user interface and device pricing, into alignment.

Did The iPad Preemptively Kill The US Tablet Market Like The Kindle & Nook Killed Other Ebook Readers?

Kindle's Future in an "iPad World"

 Jeff Bezos, Amazon.com CEO, thinks there is plenty of room in the market for optimized e-book readers.
Bezos believes the Kindle can continue to succeed as a device that’s dedicated to reading, especially long-form reading. Amazon isn’t looking to “create an experience." Amazon thinks the author will create the experience.

In a world with short attention spans, one would hope Bezos is right. Fast-paced, short form content is good for lots of things. Reflection isn't typically one of them.

Apple Wants to Sell Razors (iPads), Amazon Blades (Media)

Some observers will point out that about half of Amazon's total revenues come from selling media (books, for example) and that the Apple iPad is an obvious danger to the extent that digital content distribution moves out of its control.

To be sure, Kindle inventory can be bought on an iPad. But Apple is going to push its iBooks offering, shifting sales away from Amazon.

To be sure, notes Citi analyst Mark Mahaney, Amazon enjoys a lead for the moment in product breadth and depth. Comparing Kindle and iBooks, using the New York Times best sellers list as the data source, Mahaney notes that 88 percent of New York times  fiction and non-fiction best sellers are available on Kindle, compared to 63 percent from iBooks.

The average price for eBooks on Kindle is $11.23 compared to  $12.31 for iBooks, a 10 percent advantage for Amazon.

About half of NYT fiction and non-fiction best sellers are available for both platforms, and 80 percent of those items are priced identically on each platform. About 20 percent of the items that are cheaper on Kindle are about 11 percent cheaper, on average.

That's probably not a sustainable advantage, as a 10-percent price advantage on a $12 item is just $1.20, not likely a sustainable "moat."

The iPad is not exactly a "give away the razor, buy the blades" strategy. Apple very much wants to sell razors. Amazon, on the other hand,  really wants to sell blades. That illustrates an interesting difference in business models. Apple would merchandise content to sell media consumption devices. Amazon really would rather merchandise the platform and make a living selling the content.

Apple sells devices in the $500 to $800 range, while Kindle sells in the $189 to $489 range (basic version or the Kindle DX). Others may disagree, but it would seem Amazon has incentives to figure out how to "destroy" its hardware pricing to grab more media sales. That certainly makes more sense in the near term than trying to move upmarket directly into the iPad space.

Amazon Cuts Kindle Prices to $189

The reaction didn't take long: Barnes & Noble Inc. cut the price of its Nook e-reader to $199 on June 21, 2010. So did Amazon, just a few hours later. Amazon's standard Kindle e-reader now costs to $189, down from $259, though the "Kindle DX," featuring a larger screen and global mobile coverage, still sells for $489.

The strategic issue is whether e-book readers essentially wind up even cheaper than current levels as e-book and e-content purchase volume grows. It wasn't so long ago that would-be e-book reader suppliers thought a $400 or higher purchase price would still be viable.

Obviously the rapid emergence of a potentially-rival tablet market, exemplified by the Apple iPad, at about the $500 price point, plus Amazon and Barnes & Noble marketing at the $260 price point, has dashed a few business plans.

Of course, ask yourself which device you'd rather use, despite the higher price of the iPad. There's nothing wrong with the Kindle, but it is a monochrome e-book reader.

The iPad is a multi-purpose device that also doubles as an e-book reader.

iPad Halo Effect on Netflix

Despite immediate reactions about sales volume for the new Apple iPad, it is way too soon to make an assessment of the device's importance. But it is not too soon to note that the iPad already is having some direct impact on other firms in the ecosystem. 

Shares of Netflix, for example, hit a 52-week high early this week to $80 a share after its app for Apple Inc.'s iPad became available. 

Netflix members can watch an unlimited number of TV episodes and movies on the new iPad at no additional cost. Subscriptions begin at $8.99 per month.

And though the iPad has been widely seen as a competitor to the Amazon Kindle, Kindle inventory is immediately available on the iPad, which should help sales of content, even if eventually reshaping demand for the Kindle hardware reader. 

Why Buy a Kindle if You Can Use an iPad?

An app to read e-books from Amazon’s Kindle store on the iPad has arrived in iTunes. If that is the case, why buy a Kindle at all? Price, you might correctly note, but wait a couple of years and that problem goes away.

That suggests a major Kindle price cut has to be coming. Historically, many multi-purpose computing devices have sold better than single-purpose devices, when there is a choice. That's why iPhone sales are cannibalizing iPod sales.

With the arrival of the Kindle app, iPad owners will be able to choose whether to read books from Amazon or from Apple. Using the iPad gives users access to all Kindle inventory, with Apple inventory thrown in, as well as color support and the ability to do lots of other things that require Internet access, ranging from email to Web browsing to messaging.

Buy Your Bandwidth When You Buy Your App

As the mobile industry starts selling more connections to support sensor networks and non-traditional mobile devices such as game players and media players, it is going to create new charging methods as well.

The Kindle, for example, hides the cost of connectivity in the sales price of content. That model likely will become more popular over time as more devices emerge that require occasional connectivity, but are unsuited to the traditional monthly or prepaid billing plans.

At the same time, assuming regulators do not outlaw the concept under the guise of "network neutrality," more operators may start experimenting with priority access and other quality of experience measure.

3UK, for example, gives users on  more-expensive plans access priority access when the network gets congested. Tiered service levels are one obvious way to allow users to match their preferences with their payment plans.

Application stores might offer another approach that is akin to the way Kindle now works. It might be the case in the future that some applications are sold in a way that incorporates the cost of bandwidth in the sales price of the software.

Some users will want to pay less, and take their chances with  YouTube viewing quality. Alternatively, a user might be able to buy a service that includes quality of service mechanisms for YouTube consumption.

In principle, that isn't much different from selling access plans offering varying bandwidth at varying prices, or different buckets of voice minutes of use or text messages or data consumption. The concept might be especially attractive for users at two ends of the usage spectrum.

Very-light users might prefer the lower overall cost of paying for just enough bandwidth to support their use of particular applications. "Power" or business users might be willing to pay much for the best possible quality for business conferencing or voice quality, especially when the network is congested.

Yes, that is a combination of network management and bit discrimination. But there is no good end-user focused reason to give consumers a choice of consumption options.

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E-Book Readers Unlikely to Help Newspapers, Study Suggests

Portable e-readers such as the Kindle are unlikely to win readers back to the newspaper habit unless they include features such color, photographs and touch screens, according to professors of advertising Dean Krugman, Tom Reichert, and Barry Hollander, associate professor of journalism in the University of Georgia Grady College of Journalism and Mass Communication.

Young adults in particular compared the Kindle DX used in the study unfavorably to smart phones, such as the iPhone or Blackberry.

Skeptics might also suggest that changing the delivery channel for an unpopular product should not be expected to change the demand curve. An unpopular product's problem is its features and value, not its channels.

For younger adults, the Kindle fell short when compared to their smart phones, with touch screens and multiple applications, available in a single small package. The e-reader felt “old” to them, the professors say.

Older adults were overall more receptive to the concept of an e-reader. However, the Kindle failed to include aspects of the traditional newspaper they had grown fond of, such as comics and crossword puzzles.

Cost was a factor regardless of age. Nearly all respondents balked at the Kindle DX’s $489 price tag for reading a newspaper.

As a stand-alone attribute, Krugman said, the newspaper feature is likely not strong enough to sell the e-reader.

One might note that decades ago, when USA Today was launched, there was much speculation about how much a colorful, more "TV-like" presentation would change reader interest in newspapers. Despite USA Today's success, it does not seem to have had much impact on overall newspaper readership.

At this point, we might wonder why e-book readers will fare better.

Amazon Offers Authors, Publishers 70% of Revenues from Kindle Sales

Amazon.com has launched a new program allowing authors and publishers who use the Kindle Digital Text Platform to earn 70 percent of the revenue from each Kindle book they sell, net of delivery costs.

The new option does not replace the existing DTP standard royalty option and will be available on June 30, 2010.

Delivery costs will be based on file size and pricing will be $0.15 per MByte, Amazon says.  At today's median DTP file size of 368 KBytes, delivery costs would be less than $0.06 per unit sold.

This new program can thus enable authors and publishers to make more money on every sale. For example, on an $8.99 book an author would make $3.15 with the standard option, and $6.25 with the new 70 percent option.

"Today, authors often receive royalties in the range of 7 to 15 percent of the list price that publishers set for their physical books, or 25 percent of the net that publishers receive from retailers for their digital books," says Russ Grandinetti, Vice President of Kindle Content.

The new pricing shows, once again, how disruptive the Internet can be. This new plan will encourage more authors to "go direct" to Amazon, or at least force their publishers to sell ebooks at a substantial discount.

That will increase the pressure on traditional publishers to cut prices on wholesale Kindle books.

Amazon says the new program applies only to author or publisher-supplied list prices between $2.99 and $9.99. Why that price range? It creates a permanent and substantial pricing gap between Kindle-delivered content and a physical product delivering the same content. The list price must be at least 20 percent below the lowest physical list price for the physical book.

Publishers won't like that, but will have to get used to it.

The title is made available for sale in all geographies for which the author or publisher has rights, which similarly avoids the typical regional royalty deals, putting pressure on publishers worldwide.

Books must be offered at or below price parity with prices for the same content on other e-book readers or physical products.

This looks like a brilliant play from Amazon.  E-book prices need to (and should) drop substantially: When the cost of an incremental sale is near-zero, publishers have no business charging physical-book prices.

The traditional publishing industry obviously will have to deal with the reality of a new cost structure in the business, and that will have ramifications up and down the ecosystem. Margins will be lower, on a permanent basis, with all that implies for existing business arrangements.

On the other hand, the new policies could increase the volume of sales and certainly will create an opportunity for more niche publishing. It's just another example of how the Internet disrupts the economics of any business it touches.

Amazon Sells More Kindle Books than Physical, On Christmas Day At Least

In a milestone of sorts, on Christmas day, Amazon sold more Kindle books than physical titles, the company says.
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But Kindle content sales have a problem akin to YouTube's similar problem. The device and application are popular, and getting more traction. But the company loses money on new releases and makes only a modest amount on older titles, thus losing an estimated $1 per Kindle book sale.

The old adage about losing money on a sale, but making it up in volume does, in this case, have a logic to it. If Amazon can make its appliance and service popular enough, if it starts to drive huge volumes, then content owners will have more incentives to cut Amazon better deals on wholesale access to titles.

Over time, that should allow Amazon to improve its margins. So the big issue, long term, is whether much-lower wholesale prices will drive incremental sales volume high enough to create a big new business. Some observers speculate that at retail prices are cut to $2.99 or $3.99 per copy, sales volume should soar.

Smaller gross sale amounts, but much-higher volume, could create a more-attractive business case for Amazon and its partners.

Barnes & Noble Runs Out of E-Book Readers, Demand Stronger than Forecast

Barnes & Noble says it has run out of available stock of the new Nook e-book reader. Customers who ordger now won't get it until the week of Jan. 4, 2010. "Preorders have exceeded our expectations," said Barnes & Noble spokeswoman Mary Ellen Keating. The company says its $259 e-book reader "continues to be the fastest-selling product at Barnes & Noble.

That has been true for Amazon's Kindle, as well, which is the leading e-book reader at the moment. Analysts have been ratcheting up their sales forecasts over the past two years as consumers exceed earlier forecasts.

Apple, meanwhile, is rumored to be preparing a tablet style device that could double as an e-book reader, and, rumor suggests, will be available early in 2010.

So there is lots of "action" in the e-book reader space, interesting for what it implies about the future economics and distribution formats to be used by the publishing and news industries, the sustainability of "single-purpose" mobile device markets over time, contrasted with "multi-purpose devices," and the associated impact on mobile service provider business models.

There doesn't seem to be much question that distribution of print content now is at the beginning of a change that music already has gone through, and that video also is undergoing. Book distributors and publishers have to be wondering whether this is all such a good thing for them.

From an end user standpoint, one of the interesting angles is whether the e-book reader remains a stand-alone, single-purpose device or whether it ultimately becomes a feature of a multi-purpose device. The answer obviously has huge ramifications for smartphone, netbook and e-book providers.

There is no single historical pattern here. TV displays, home audio systems, microwave ovens and landline phones generally have remained single-purpose devices. The iPod has been a single-purpose device, but the "touch" and now the iPhone might be changing that situation.

Smartphones are multi-purpose devices. Portable navigation devices traditionally have been single-purpose devices, but the Motorola Droid is challenging that notion.

Apple's rumored tablet would be an attempt to provider a multi-function device, and that probably is the form factor necessary for such a convergence. Though people have speculated on smartphones becoming e-book readers, the challenges of form factor (small enough to fit in purse or pocket, light enough to use as a phone, plus large enough screen size to read) seem rather implausible in a single device.

Besides Amazon and Barnes & Noble, other companies offering e-readers include Japan's Sony, Britain's Interead, and Dutch company IREX Technologies.

Forrester Research estimates that three million e-readers will be sold in the United States this year, up from a previous forecast of two million units.

Forrester said it expected 900,000 units to be sold in the upcoming holiday season alone and for e-reader sales to double to six million units in 2010, bringing cumulative sales to 10 million units.

Citi analyst Mark Mahaney thinks Amazon will sell 1.5 million Kindles in 2009, up from his previous estimate of one million. Mahaney thinks Amazon will sell 2.7 million Kindles in 2010.

“Book applications for smartphones have the potential to become a bridge to other devices such as tablet readers and netbooks,” said Mr. Weiner. “Apple, for example, could migrate the more than 500 book applications in the iTunes store to a tablet device and Google, which recently announced a browser-based e-reader, could offer applications for Android-based devices of various form factors,” he says.