On Seeking Alpha, Dana Blankenhorn discusses Amazon’s “big problem” with books, and particularly e-books. He notes the decline in Kindle sales I had previously mentioned, as well as the price hike in e-books following the clock running out on the agency pricing settlement, and ponders whether the impending Kindle Oasis can turn the game around. He also mentions an anticipated price point of about $150 for the new device, which is the first time I’ve heard someone throw out a ballpark figure.
Blankenhorn points out that even if the Oasis does jumpstart Kindle sales, it may not have that much meaning for Amazon overall. The e-book business only makes up about $10 billion, and at the moment Amazon’s trying to grow 20% from a $108 billion base.
The whole e-book market, which Amazon created and nurtured, is thus of greater interest to writers and publishers than it is to investors. It may well be true that publishers got greedy with Amazon on pricing and that Amazon was right on that issue. It may well be that Version 8 of the Kindle will be a big hit. But even if this is all true, it won’t really move the needle on Amazon’s top or bottom line. The revolution is over and the market is mature.
For Amazon to move that needle investors will need to see skyrocketing sales in India, strong growth in the cloud and continuing growth in merchants using its fulfillment infrastructure. It can get all that, but the Kindle will henceforth be a sideshow to Amazon’s investment thesis.
He may have a point there. Amazon started out based on books, but even before the Kindle came out it had already diversified into many other areas, and it’s kept up that expansion ever since. Amazon is hardly going to give up the book market—it’s good PR, and as one of Amazon’s biggest successes it’s highly symbolic of the whole, but Amazon isn’t going to live or die on e-books’ success or failure anymore.
But that success or failure is much more important to publishers, author advocacy groups, and others whose own fortunes are heavily invested in books and e-books. This is why they always make so much noise any time Amazon tries something different—such as starting to open physical bookstores that could theoretically threaten Barnes & Noble someday.
With that in mind, I wonder how many more generations of e-ink e-reader we’ll see. Amazon’s strength is that its e-books can be read on any platform—even via a web browser on those few platforms that don’t have their own Kindle reader app. As sales decline, it doesn’t seem like it will be worth pouring more money into further design and development. Will they eventually fade out like the monochrome LCD PDA?
Dedicated e-ink e-readers in general are the preferred device of those who purchase and read the most e-book content. Bezos has said it before that Amazon expects to make money based on how much they use the device and not the device itself. As long as that holds true Amazon will continue to make them.That core of hardcore readers will remain a constant no matter how broad based the casual group of readers get who care little about which device they read on.
I hate the word, but I’ll use it here. We need to have “nuance” when we discuss Amazon and ebooks.
From one perspective, Ebooks are not a big money maker for Amazon because ebook sales are relatively small and unlikely to grow that much because growing the number of regular readers is unlikely. Also, even the more pricey ebooks don’t cost that much, typically under $20. Kitchen knifes cost more than that.
From another perspective, ebooks are a big money maker for Amazon because the profit margin is so high. I’ve explained why elsewhere, so here I’ll just suggest that Amazon spends pennies to sell an ebook and often makes dollars, particularly when it is only paying the author and publisher 35% royalties. That’s a profit margin of several thousand percent, particularly on textbooks. No company that counts its beans as carefully as Amazon is going to take a pass on that markup. It’s going to defend the market, tooth and claw, and attempt to dominate it—as indeed Amazon does.
In such a situation, ebook readers are under threat. Unlike tablets, where Apple competes with several other major competitors, Amazon has little competition for ereaders. We’re likely to see a worse case scenario. Amazon is likely to stay in the market long enough to weaken or destroy any competition and then quit selling them, ending any market for ebook readers at all.
The fact is, now that they’ve killed off brick & mortar bookstores and B&N has self-destructed, if you want a book in America you gotta go through Amazon.
That’s unlikely to change anytime soon. E-books might not be important to Amazon but they’re kind of important to non-Amazon people. As the saying goes, ‘Amazon broke it so now they own it’.
[…] Are Ebooks Really That Important to Amazon? (Teleread) I wonder how many more generations of e-ink e-reader we’ll see. Amazon’s strength is that its ebooks can be read on any platform—even via a web browser on those few platforms that don’t have their own Kindle reader app. As sales decline, it doesn’t seem like it will be worth pouring more money into further design and development. Will they eventually fade out like the monochrome LCD PDA? […]