Wednesday, June 23, 2010

Speculation on the Kindle/Nook Price Reductions

The actions earlier in the week by Amazon and Barnes and Noble to reduce the price of their e-readers could have been caused by two factors.  When the news first broke some speculated that the Amazon was readying a new version of the Kindle that would do a lot more than the current version.  It would become, as one commentator suggested "an e-reader on steroids."  Amazon may well be preparing a new version ofthe Kindle.   But a more plausible explanation of the price cuts relates to the change brought about by the 3 million new devices that came into the e-reader market in the first 80 days of the iPad.

Getting a read on Kindle sales is a bit tough.  According to Jeff Bezos, Amazon sells six books for ten physical books they sell.  In a story on Information Week the CEO said the ratio would even be higher if they counted free books. The best estimates one can find on Kindle suggested about a year ago that sales of the device would reach $750 million by 2010.  The best estimate of sales is that first year was 189,000 units growing to 2.2 million units.  The Q4 financial disclosures of Amazon for 2009 do not break out Kindle numbers but total revenues increased significantly, depending on accounting issues by between 28% and 42%. Their Q1 estimate was for growth of between 32% and 43%.  In March, Barnes and Noble claimed that sales of the Nook exceeded those of Kindle.  (I find that hard to believe as I fly I look for which devices people are using.  In the last six months, I have seen about a dozen Kindles, one Nook and four of five iPads.)  Whatever the numbers, the Kindle is contributing to Amazon's position as a retailer.  I suspect the same thing is happening to B&N with the Nook.

The Kindle remains a superbly good e-reader.  The price point for the device would be secondary if the Bezos claim is correct.   Like sales of cellular phones, the price of a Kindle, if it induces more book sales, is virtually irrelevant.   It is very possible that if iPad sales continue to boom that we will see further reductions in price.   As I wrote when the iPad came out, I believe that there will remain a very strong market for mostly single purpose e-readers like the Nook and the Kindle.   The linkage that both of these companies have to publishers will continue to put them in a strong competitive position compared to devices like the Sony.   It seems to me that those devices will be increasingly squeezed between the wider use tablets and the focused e-readers.

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