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

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.

Acer to Market Tablet and E-Reader

Acer Inc. will start selling its first e-reader later this summer and also a touchscreen tablet computer in September or October, according to the Wall Street Journal. The e-book reader features a six-inch display, while the tablet PC will feature a seven-inch screen, and is powered by Android.

The interesting angle here is that consumers will have a choice of form factors. Apple's iPad uses a screen that is almost 10 inches diagonally, while Dell will sell a device with a five-inch screen. Acer is in the middle with a seven-inch screen on its tablet.

The issue, beyond the broad issue of whether tablet PCs represent a new PC segment or a new device category, partly hinges on what people decide they want to do with such devices.

Smaller screen devices such as the Dell might be seen as functionally similar to smartphones, in terms of portability. Large-screen devices cannot be conveniently carried in pockets or purses, and likely will compete more with netbooks or notebooks.

The Acer e-reader, dubbed "LumiRead," has a six-inch display and is equipped with two-gigabytes of flash memory, which allow it to store up to 1,500 books. Acer, which shipped more PCs than any company except Hewlett-Packard Co. in the first quarter, will sell its e-reader first in the U.S., China and Germany.

Google to Launch E-Bookstore This Summer

Google will begin selling digital books as early as late June or July, Google Manager Chris Palma says, as reported by the Wall Street Journal.

"Google Editions" hopes to distinguish itself by allowing users to access books from a broad range of websites using a broad array of devices, instead of tying software to one piece of hardware.

Google says users will be able to buy digital copies of books they discover through its book-search service. It will also allow book retailers, including independent shops, to sell Google Editions on their own sites, taking the bulk of the revenue. Google is still deciding whether it will follow the model where publishers set the retail price or where Google sets retail prices.

"As a publisher, what I like is that I won't have to think about audiences based on devices," says Evan Schnittman, vice president of global business development for Oxford University Press.

It doesn't appear that consumers view the iPad primarily as an e-book reader, but more as a media appliance, a comScore study suggests.

Though 37 percent of respondents indicated they were “likely” or “very likely” to read books on the device, nearly half indicated a high likelihood of using the iPad for browsing the Internet (50 percent) and receiving and sending email (48 percent).

More than one third said they would use it for listening to music (38 percent), maintaining an address book or contact list (37 percent), watching videos or movies (36 percent), storing and viewing photos (35 percent) and reading newspapers and magazines (34 percent). says comScore.

“These devices have the potential to be incredibly disruptive to the way consumers currently access digital content," says Serge Matta, comScore EVP.

The big issue is whether there exists a sizable market for a digital appliance somewhere between a netbook or notebook PC and an iPhone. In that regard, when asked whether they would use an iPad “instead of” or “in addition to” other digital devices, the highest amount of potential substitution was for the iPod Touch (37 percent).

Conversely, despite widespread belief that the iPad might threaten netbook adoption, only 22 percent of consumers said they would use an iPad in place of a netbook.

The most important device attributes that consumers indicated they would like to have included in the iPad were: ability to use multiple applications/programs at once (43 percent), having a screen the same size as a laptop or desktop computer (37 percent) and having a built-in camera (34 percent). Among iOwners, the percentages were substantially higher at 56, 66 and 51 percent, respectively.

Some 34 percent of males indicated they were likely to use the iPad for playing action, strategy or role-playing games, as did 28 percent of females. More than half of those 18 to 24 year olds (53 percent) said they were likely to use the iPad for gaming.

Younger consumers indicated a high willingness to pay for news and magazines specially formatted for e-readers. About 68 percent of 25 to 34 year olds and 59 percent of 35 to 44 year olds said they were willing to pay for this type of content.

If comScore's results prove to be correct, the iPad will emerge as a media appliance.

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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.

E-Book Style Revenue Models Needed for Many Mobile Devices

As Apple plans to introduce a new mobile "tablet" device, and rumors grow that Google is working on a Chrome operating system tablet of its own, it is not hard to predict that much future growth for mobile service providers will be in providing broadband data connections for such devices, whether or not the actual first-generation devices from Apple and Google actually take off.

The reasons are drop-dead simple: most people who want a mobile phone already have one. The new growth frontier is for other devices that also benefit from a broadband connection, such as notebooks, tablets and e-book readers.

Shipments of mobile broadband-enabled consumer electronics are forecast to increase 55-fold between 2008 and 2014, say researchers at ABI Research. The market includes e-book readers, mobile digital cameras and camcorders, personal media players, personal navigation devices and mobile gaming devices. Total global shipments reach 58 million in 2014, says ABI Research.

One suspects sales of mobile-connected devices will hit critical mass only when a device is linked intimately with a content service that provides the revenue model. Not many consumers likely will spend much money to Internet-enable their cameras, for example.

Instead, what we probably will need to see are content services (e-book readers provide an excellent example) where payment for content subsidizes the use of mobile broadband access, with no incremental cost to the end user.

One suspects tablet devices likewise will achieve only modest success until video and other content services provide the revenue to support no-incremental-cost use of mobile broadband connectivity.

It isn't immediately clear how this might work for devices supporting multi-player gaming, for example, but e-book style models likely will have to be created for mass adoption of mobile broadband for gaming devices.

Consumers are not going to want to buy subscription plans for many discrete mobile devices at rates anywhere close to what broadband access now costs, either for smartphones or notebooks, for example.

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.