Kindle US Marketshare at 45%, Sony at 30%

[griffonwing]

To all who have quoted me, telling me I was wrong, and that I was contradicting myself, I would like to point out that in those posts, I was voicing an opinion. How can "Any device which is not user-friendly (replaceable battery, user-defined storage like SD cards, etc..) I consider to be crippled." be wrong? It is one sentence where the subject (in blue), is followed by the verb (green). I am stating that this is my opinion.

And for TadW, when I posted earlier and said "Wrong, at least for myself", it also was letting you know these were my own personal insights and opinions. I was not saying you were wrong. You were right, of your own viewpoints. I am right, in my own.

I also said that "I do not recall seeing any with more than 1GB", not that they don't exist. It is good to know about the Kindle having 2 and under 4GB memory, but as I also stated, I am not much of a follower of Kindles. But these 2 devices makeup a , small number of the devices worldwide. To my knowledge (stress my knowledge), have less than 1GB internal memory, which, if I want to carry my library with me, is inadequate.

If I have posted that any of your opinions were wrong, then I slipped somewhere and I apologize. But everything I have posted was opinion, and my opinion, to me, is not wrong, it's right. It's an opinion.

Rant off.

[Jim Lester]

Originally Posted by griffonwing

To all who have quoted me, telling me I was wrong, and that I was contradicting myself, I would like to point out that in those posts, I was voicing an opinion. How can "Any device which is not user-friendly (replaceable battery, user-defined storage like SD cards, etc..) I consider to be crippled." be wrong? It is one sentence where the subject (in blue), is followed by the verb (green). I am stating that this is my opinion.
Rant off.

Griffonwing,
When I was reading it, I took exception to your definition of user-friendly (replaceable battery, user-defined storage like SD cards, etc...). While those are interesting factors for the hardware, for user-friendly I would look are more user interface issues such as - with the button placement how hard is it to change pages, how hard is it to find the book I want to read, how hard is it to get the books I want onto the device in the first place, etc...

I've found that for me, the software (firmware) on the device makes a lot more difference about if the device is usable than additional hardware features.

But as you noted different people will be looking for different things in their devices, so I'm just glad that there are so many manufacturers interested in producing readers, so that given a large enough selection you may be able to find a device that matches your criteria.

[griffonwing]

I have to agree with you, Lester. For some things, a simple reader is preferable. That is my want, for the most part. Just a simple reader, with no frills, except for a few needings. Wifi, 3g, touchscreen, keyboard...these things are unimportant to me. They are simply extravagances that I do not with to pay for.

The ability to replace a bad or broken battery, the ability to increase my storage by simply carrying SD cards (card for music, card for fiction, card for classics from MR, Google, Gutenburg). This I like, and was helpful in finding my personal choice.

You are also correct in Firmware, which is the main reason I have not purchased a Kindle or Sony. There are formats that I currently have that they do not support. However, I am not knocking those who purchase either device. I cannot speak for them.

[Lemurion]

I understand that you were speaking of yourself when it comes to the importance of a user-serviceable battery and expansion card support, but despite their importance to you personally, I don't think they will affect enough customers to have a noticeable negative effect on sales of the 300.

[griffonwing]

Well, of course. It's a Sony!

[Hellmark]

I really like my 505, and I am eagerly awaiting OI to be ported to it. Can't always have things be good from the start.

[Alisa]

The main issue to me with the razor/blades analogy is that I don't think the margin is high enough on the books to outweigh the cost of the reader. A razor handle costs a few bucks to make and they sell me the blades at $15-$20 for a pack. The margin on those blades is huge. That model makes money.

The last time I saw a parts cost breakdown on the Kindle, it was around $140. That's just the hardware. Firmware, warranty coverage, distribution, etc.. all cost money, too. Let's say that's gone down since then and they could actually deliver the unit at a total cost of $150. Even at that low cost, they would have to sell a lot of books to break even. We already know that they lose money on the new releases and best sellers so it's up to the back catalog, periodicals and uploaded stuff to make up for that. We're looking at usually 35 cents to a few bucks revenue (not profit) on each of those. Even if they averaged a buck profit per sale of these non-loss-leaders (which I highly doubt) you'd be looking at having to make 150 sales in these categories just to break even. I think I've been pretty generous with all these estimates and it's still not doable. I don't think they're making much of a profit on the Kindle as it is but taking even a moderate loss on it would take quite a few sales to recoup since the books themselves are pretty low margin.

[DaleDe]

I think the main issue with the razor blade analogy is trying to insure that people only buy the razor blades from you. Selling a razor at a loss does no good if people buy their blades from someone else. The cellphone analogy is much better. You discount the phone and then make it up with a contract. Perhaps a book of the month club. You can already get a free eBookwise reader this way.

[astra]

Originally Posted by Hellmark

they ooh and ahh and want one as well

But only few buy them.
I am back from 2 weeks holiday in Turkey.
Huge deluxe hotel/resort with 1.500 guests.
Do you think I have seen many ebook readers?
Not a single one!!!
Some people had netbooks, some had laptops because there was wireless all over the resort, quite a few had printed books and were reading a lot, but ebook readers? No.
The same was previous summer in Mexico. Huge resort. Probably 40% Americans. I hoped to see kindle. No luck. No ebooks readers. Well, I lie. I have seen one - sony 505. Young Spanish couple had it.

[astra]

Originally Posted by HarryT

I totally agree with you. I've never used a memory card in any of my reading devices - the internal storage is always (for me) entirely adequate. Eg, I have 300 books on my CyBook Gen3, and am using 40% of the internal memory.

Ditto.
I have about 100 books on my Sony Reader PRS-505 and it uses less than a half of built-in memory.

[RWood]

When I purchased my Sony PRS-500 in November of 2006 Sony gave a $50 credit at their bookstore plus several fre books preinstalled on the Reader.

As for internal storage, the 500 has one of the smallest amounts of any e-ink unit at 91.9 MB. Given that the average e-book on my unit at the moment is ~500 kB this means that I can carry over 180 titles. The largest e-book is just over 2 MB so I could take over 40 copies of Harry's version of Conan Doyle's Sherlock Holmes Omnibus with me.

[GA Russell]

Originally Posted by Alisa

The main issue to me with the razor/blades analogy is that I don't think the margin is high enough on the books to outweigh the cost of the reader. A razor handle costs a few bucks to make and they sell me the blades at $15-$20 for a pack. The margin on those blades is huge. That model makes money.

The last time I saw a parts cost breakdown on the Kindle, it was around $140. That's just the hardware. Firmware, warranty coverage, distribution, etc.. all cost money, too. Let's say that's gone down since then and they could actually deliver the unit at a total cost of $150. Even at that low cost, they would have to sell a lot of books to break even. We already know that they lose money on the new releases and best sellers so it's up to the back catalog, periodicals and uploaded stuff to make up for that. We're looking at usually 35 cents to a few bucks revenue (not profit) on each of those. Even if they averaged a buck profit per sale of these non-loss-leaders (which I highly doubt) you'd be looking at having to make 150 sales in these categories just to break even. I think I've been pretty generous with all these estimates and it's still not doable. I don't think they're making much of a profit on the Kindle as it is but taking even a moderate loss on it would take quite a few sales to recoup since the books themselves are pretty low margin.

Alisa, in the Gillette analogy, Gillette is the manufacturer of the blades and razors. With Amazon, the publisher is the manufacturer of the eBook while Amazon is the manufacturer (or license-grantor) of the eBook reader. Obviously, the publishers should cooperate with Amazon in order to maximize Kindle and eBook sales. I think that Amazon has enough clout to successfully negotiate such cooperation.

I don't feel that your objection takes Amazon's clout into account. Amazon is not stuck with low profit margins on eBooks. An eBook costs nothing to manufacture after the first one is made. Amazon is free to refuse to give its best deals to publishers who refuse to cooperate.

But all this is inside baseball. My point is that if Sony and Amazon are going to link their readers to a particular store with DRM, they should make it obvious to the public why their product should be chosen instead of their competitors. And I suggest that the way to do that is to offer so many books in the package deal that the reader will seem free. The customer will feel like he has nothing to lose by investing in the reader if he knows he is going to get his money's worth of books out of it.

[Kali Yuga]

FYI Amazon intends to generate revenue from both the reader and the ebook sales, so the "razor blade" analogy doesn't apply.

I don't think that model would go over very well anyway. It might drop the reader costs, but would require higher costs for the ebooks. I doubt anyone would be psyched over $15 ebooks, even if the reader is less expensive.

Originally Posted by GA Russel

An eBook costs nothing to manufacture after the first one is made.

Wrong. You have all kinds of ongoing costs -- website maintenance, server storage, bandwidth, payment processing, customer service, database issues, and of course staff to keep everything going. Not to mention that you have to pay the royalties to the publisher.

Amazon has already stated that some of the $9.99 ebooks are loss leaders, by the way. The prevailing theory is that sooner or later, Amazon (and perhaps other ebook retailers, who are also pushing the $9.99 price point) are going to turn the screws on the publishers and demand lower wholesale prices on eBooks.

Originally Posted by GA Russel

My point is that if Sony and Amazon are going to link their readers to a particular store with DRM, they should make it obvious to the public why their product should be chosen instead of their competitors. And I suggest that the way to do that is to offer so many books in the package deal that the reader will seem free.

With all due respect, now we know why you aren't the CEO of a major retailer. Did you run a dot-com in the mid 90s or something?

Given the fact that Amazon has a fairly expensive reader and has still managed to overtake Sony in the US market, I hardly see why they (or anyone else) would want to utterly eviscerate their revenues in order to acquire new customers.

[GA Russell]

Originally Posted by Kali Yuga

FYI Amazon intends to generate revenue from both the reader and the ebook sales, so the "razor blade" analogy doesn't apply.

I have it on good authority that Gillette always made money on its razors too!

I don't think that model would go over very well anyway. It might drop the reader costs, but would require higher costs for the ebooks. I doubt anyone would be psyched over $15 ebooks, even if the reader is less expensive.

My model doesn't call for Amazon to lower the retail price of eBooks. It calls for Amazon to negotiate a lower wholesale price with the publishers.

Wrong. You have all kinds of ongoing costs -- website maintenance, server storage, bandwidth, payment processing, customer service, database issues, and of course staff to keep everything going.

Those are Amazon's costs. I was referring to the publisher's costs.

Not to mention that you have to pay the royalties to the publisher.

The wholesale prices Amazon pays the publisher are not royalties.

My whole point is that Amazon has the power to negotiate lower wholesale prices for the eBooks, just as the record clubs negotiated lower prices for albums from the record companies, and pass the savings on to new purchasers of Kindles.

Amazon has already stated that some of the $9.99 ebooks are loss leaders, by the way. The prevailing theory is that sooner or later, Amazon (and perhaps other ebook retailers, who are also pushing the $9.99 price point) are going to turn the screws on the publishers and demand lower wholesale prices on eBooks.

That's what I'm talking about.

With all due respect, now we know why you aren't the CEO of a major retailer.

You don't know me from Adam.

Given the fact that Amazon has a fairly expensive reader and has still managed to overtake Sony in the US market, I hardly see why they (or anyone else) would want to utterly eviscerate their revenues in order to acquire new customers.

Consider the Apple iPod/iTunes model. Apple reinvigorated the company, not eviscerated it.

[Kali Yuga]

Clearly the "razor" model works... for some businesses. That hardly means they work for any and all businesses.

Let's say the following comes to pass: publishers drop the wholesale ebook cost to $5, Amazon spends another $2 per book on infrastructure, so that's $3 profit per ebook for Amazon, which is a very optimistic scenario. If they give a new Kindle owner a $300 credit, that one customer will have to buy 100 ebooks -- or spend nearly $1,000 on ebooks -- in order to make up for that lost revenue. And that's after that customer has downloaded $300 worth (30 full-priced ebooks) from the Kindle store. Reduce the proposal to $200 per Kindle, and you're looking at breaking even with 67 books (after the customer gets 20 books), or $670.

This is a very high price to acquire a single customer; even a massive marketing campaign would bring a better return on a per-customer basis.

In contrast, it costs Gillette maybe $5 or $10 to capture a new customer, and they likely recoup that cost with the purchase of 1 or 2 sets of blades. Low customer acquisition cost, fast recapture of the expense.

Or, compare this to a cell phone contract. Let's say Sprint subsidizes a cell phone, and invests $200 to capture a new customer. The customer accepts a 2-year contract at $75 a month, and a $250 penalty to quit early. This works because the customer's payments are a) larger, b) regular, c) predictable, d) accepted as "normal" by the customer, e) has an enforceable term to recapture the cost of acquiring the customer.

Can you think of a viable, easy and consumer-friendly way to lock a Kindle owner into a contract to buy 30, 60, or 100 ebooks...?


Meanwhile, the Kindle's main competition is Sony, a hardware-oriented company -- which means Amazon can try to get a profit off the Kindle and know it will still be competitively priced. Not only that, but they've become a formidable competitor in a short period of time, with minimal marketing and/or per-customer acquisition cost -- i.e. they're kicking ass without needing to throw hundreds of dollars at new Kindle owners. And of course, if they do manage to reduce the wholesale price of an ebook -- a process that seems completely independent of the sales figures of the Kindle anyway -- Amazon is just going to pocket that as revenue, as they've been planning from the start.

So, explain to me again what the advantage is of Amazon slashing their revenues by $200 or $300 per customer? 'Cause I don't see it. And neither does anyone else in the industry, as far as I can tell, since no one is doing it.


P.S.: Bezos discussed his reasons for the Kindle / Kindle books pricing model at length a few months ago. If you can bear to sit through it, a video is here.