eWeek: Kindle & Nook To Dominate

[ekaser]

An opinion piece in eWeek: Kindle, Nook Ready to Dominate E-Reader Market

Amazon and Barnes & Noble were just two of many companies promoting e-readers at the beginning of 2010. Thanks to rising cost pressures and competition from the likes of Apple, they may soon be the only ones.

“With these cuts, ebook readers from Barnes & Noble as well as Amazon now are priced at about the break-even level with their Bill of Materials … and manufacturing costs,” William Kidd, director of iSuppli, wrote in a June 24 statement. “With zero profits on their hardware, both these companies now hope to make their money in this market through sale of books.”

Both Amazon and Barnes & Noble can leverage their existing infrastructure and customer base to make those sales happen; but smaller e-reader manufacturers lack that brand awareness and marketing millions. Lacking high-volume e-book sales, and manufacturing devices with either nonexistent or negative margins, the latter could find itself pushed out of existence in short order.

Seems pretty obvious that the big book-seller/book-reader combo companies have all the advantages (can sell readers at cost or loss, make profits on book sales), and that will drive the smaller reader-only or reader-and-weak-bookstore companies out of business.

[J. Strnad]

I think that's pretty much what it's coming down to, unfortunately.

[fjtorres]

I'm not sure that's a given.

The environment *is* challenging for competitors but there is room for alternative readers built around something other than ebook storefronts. Competitors do need to understand that if the want to compete they *have* to compete; they have to establish retail presence, let consumers know what their value proposition is, and make sure they offer more than just a minimalist reading experience.
In the new regime it's not enough to announce a reader, put up a website, and sit back to wait and see if anybody nibbles. Online-only "Fly-fishing" marketing won't do when there's trawlers out there. And it would help if (some) vendors remembered that there is such a thing as post-sale support.

Not going to be easy but, if quoted numbers can be believed, there's still 30-million customers up for grabs in the US alone. There should be room for something besides the connected-storefront readers.
We can hope.

[stargazertony]

Since none of the e-book manufactures tell us what their cost of manufacturing or gross profit per unit is, this is all speculation - not fact but a kind of trolling. There are many reasons a company may pull a product from development or profitable items from sale. How do we know, for example, that Amazons gross on each Kindle isn't 3000%. Don't think that's an absurd number because grosses much higher than that exist in some industries. We can do all the figuring or expected costs we want however, we just don't know what a manufactures costs really are and what deals they have cut.

[davidspitzer]

Originally Posted by fjtorres

I'm not sure that's a given.

The environment *is* challenging for competitors but there is room for alternative readers built around something other than ebook storefronts. Competitors do need to understand that if the want to compete they *have* to compete; they have to establish retail presence, let consumers know what their value proposition is, and make sure they offer more than just a minimalist reading experience.
In the new regime it's not enough to announce a reader, put up a website, and sit back to wait and see if anybody nibbles. Online-only "Fly-fishing" marketing won't do when there's trawlers out there. And it would help if (some) vendors remembered that there is such a thing as post-sale support.

Not going to be easy but, if quoted numbers can be believed, there's still 30-million customers up for grabs in the US alone. There should be room for something besides the connected-storefront readers.
We can hope.

hardware sales only is not a sustainable business market for ereaders, they will be squeezed out by Amazon, B&N and perhaps even Apple. Even a major player like Irex was doomed from the beginning. The manufacturing, marketing and other expenses can not be sustained by selling a few thousand readers to people who love to tinker. The majority of the consumers want to enter their credit card info and buy a book and then read it, they dont care about formats and drm and myriad of other technical minutiae that we do.

The Kindle is winning becuase you can buy one and with a credit card and electricty you can start reading books. You dont need a computer or a software client or a conversion process. We can talk about the efficacy of formats all day long but form and function will lose out over marketing and ease of use every single time with consumers.

With a content strategy you can sell your device at whatever you are willing to take in a loss in order to lock them into buying your contetent. Ask apple how that has worked out for them for music, it will be the same for books. I dont like certain aspects of the way its layed out, but i will put my money with Apple and Amazon. I think it will be a safe investment and so does the majority of the consuming public.

I have no doubt that if they needed to Amazon can and would sell the kindle for $49. A hardware only vendor does not have a prayer in that market

[kjk]

Originally Posted by stargazertony

Since none of the e-book manufactures tell us what their cost of manufacturing or gross profit per unit is, this is all speculation - not fact but a kind of trolling.

Yes, it is difficult to determine without any breakdowns/volumes. Apple does report gross margins for hardware sales (around 40%), and number of units sold for *most* of their products (no iPod Hifi or AppleTV numbers ), which is more than any eReader manufacturer has released-but even then it is difficult to break it out by product.

[foreverjuly]

I think there's one factor that's not really being taken into account here. Many authors are signing exclusive deals with Amazon or whichever company. I think whichever distributor has the best books and the best deals is going to win out, and that could even be one of the smaller guys if they gave someone a fantastic deal. So far Amazon has a clear lead in this department though.

It's all a matter of where the hottest books are.

[davidspitzer]

Originally Posted by foreverjuly

I think there's one factor that's not really being taken into account here. Many authors are signing exclusive deals with Amazon or whichever company. I think whichever distributor has the best books and the best deals is going to win out, and that could even be one of the smaller guys if they gave someone a fantastic deal. So far Amazon has a clear lead in this department though.

It's all a matter of where the hottest books are.

yes, thats true but people will also compromise on selection for ease of use. I still cant buy beatles on itunes yet i still use it. Amazon is clearly winning in the selection market anyway, so that coupled with their ease of use does not give me any idication that someone other than B&N can even compete (or perhaps Apple).

I can buy a kindle in target, and be reading a book without the use of a computer in about 10 minutes of setup, Credit card entry etc. Nothing drives purchases like impulse buying. I open my kindle hey thats a cool book "click" buy/read vs hey when I get home ill boot up my laptop, look on Sony connect, download it and then sync it to my 505 then read... oh wait never mind im going to watch TV. Its the Amazon, B&N and Apple ecosystem. It caters to the Desire====> intant gratification needs of todays consumers

[GA Russell]

Originally Posted by fjtorres

Competitors do need to understand that if the want to compete they *have* to compete; they have to...make sure they offer more than just a minimalist reading experience.

I'm not so sure. Just as there is demand for a pocket calculator that does nothing more than add, subtract, multiply and divide, I think that there will be a demand for a reader that offers "just a minimalist reading experience."

Of course, the retail price would have to be low, just as the simple pocket calculator's price is low.

Ectaco is not in the eBook file business, it's in the e-dictionary hardware business. I don't see why it couldn't continue to sell its simple eBook readers at a price lower than its competitors as an adjunct to its dictionary line.

[Graham]

Originally Posted by GA Russell

I'm not so sure. Just as there is demand for a pocket calculator that does nothing more than add, subtract, multiply and divide ...

Is there?

Graham

[davidspitzer]

Originally Posted by GA Russell

I'm not so sure. Just as there is demand for a pocket calculator that does nothing more than add, subtract, multiply and divide, I think that there will be a demand for a reader that offers "just a minimalist reading experience."

Of course, the retail price would have to be low, just as the simple pocket calculator's price is low.

Ectaco is not in the eBook file business, it's in the e-dictionary hardware business. I don't see why it couldn't continue to sell its simple eBook readers at a price lower than its competitors as an adjunct to its dictionary line.

The simple calculator is a closed ecosystem it is unlike an ebook reader which is basically nothing without content. The market is a much different beast then a simple close looped electronic device. There will always be a market for crapware electronics much like people will be garbage mp3 players instead of Ipods (usually well intentioned grandmothers for their grandchildren who make that face and say "gee thanks grandma") It still does not factor into my mind when I think of who will clearly dominate the ebook business. Ectaco may very well continue to sell their ebook reader but it really does not matter in the grand scheme of it all..

[wallcraft]

Originally Posted by stargazertony

We can do all the figuring or expected costs we want however, we just don't know what a manufactures costs really are and what deals they have cut.

Volume makes a difference, and we don't know what kind of deal Amazon and B&N gets on the EInk screens, but iSuppli says:

“With these cuts, eBook readers from Barnes & Noble as well as Amazon now are priced at about the breakeven level with their Bill of Materials (BOM) and manufacturing costs, according to iSuppli’s Teardown Analysis Service,” said William Kidd, director and principal analyst, financial services for iSuppli.

The Kindle 3 might be a bit cheaper than the Kindle 2, and the Nook is probably more expensive to make (two screens). Still, they are not taking a huge mark up at $139-$149. I don't think the parts for 3G cost $50, so there is more room for a profit on the WiFi+3G models.

[fjtorres]

Originally Posted by GA Russell

Of course, the retail price would have to be low, just as the simple pocket calculator's price is low.

And if the price is low, so is the profit.
The point of the original article is that in the low-price arena *nobody* is going to be lower than the ebookstore guys. Not for long. And nobody is going to invest millions in design and marketing to make a living off peanuts; companies aren't in business as a public service, they're in the game to make money for their owners.

*My* point is that would-be competitors need a value-add model where they add compelling features to justify a premium price; that just shipping a barebones reader that simply opens epubs and maybe PDFs isn't going to get you very far against the Nooks and Kindles of the world. Minimalist readers are *not* going to be a sustainable business, not when the ebookstore guys are shipping readers with a pretty decent feature sets at minimal prices.

Take a look at the new features on the K3; Amazon didn't just drop prices, they added functionality.
http://www.teleread.com/2010/08/01/u...-the-kindle-3/
And they're moving to retail, to boot.

There's room to compete but not at the bottom; to survive you need to offer a *more* robust reading experience not a leaner one.

[davidspitzer]

Originally Posted by fjtorres

And if the price is low, so is the profit.
The point of the original article is that in the low-price arena *nobody* is going to be lower than the ebookstore guys. Not for long. And nobody is going to invest millions in design and marketing to make a living off peanuts; companies aren't in business as a public service, they're in the game to make money for their owners.

*My* point is that would-be competitors need a value-add model where they add compelling features to justify a premium price; that just shipping a barebones reader that simply opens epubs and maybe PDFs isn't going to get you very far against the Nooks and Kindles of the world. Minimalist readers are *not* going to be a sustainable business, not when the ebookstore guys are shipping readers with a pretty decent feature sets at minimal prices.

Take a look at the new features on the K3; Amazon didn't just drop prices, they added functionality.
http://www.teleread.com/2010/08/01/u...-the-kindle-3/
And they're moving to retail, to boot.

There's room to compete but not at the bottom; to survive you need to offer a *more* robust reading experience not a leaner one.

yes - exactly

Even the cheap readers ala Kindle 3 etc are pretty featured packed. I think the luxury market is going to be tough. It woul dbe like coming up with a luxury MP3 Player to compete with the Ipod nano, classic and touch

[Kali Yuga]

Originally Posted by fjtorres

*My* point is that would-be competitors need a value-add model where they add compelling features to justify a premium price; that just shipping a barebones reader that simply opens epubs and maybe PDFs isn't going to get you very far against the Nooks and Kindles of the world.

Quite likely. However, I don't see which competitors will be able to offer anything. Smaller companies don't have the resources, might not have access to content, and any special features they add might get aped by Amazon / B&N / tablets fairly quickly.

Even Sony, which has been in the market for some time and has major resources, may not be able to survive. It's unclear how their reader sales are going, since they don't release numbers and media perceptions could be well off the mark. But if Sony can't hang, I doubt any smaller competitor would be able to survive.