WSJ: Investors Are Freaking Out About Barnes & Noble

[kennyc]

Originally Posted by fjtorres

Not. Really.


Official US literacy runs 95-97% but that includes a lot of social promotion.
More, ebook readers depend on people who read for entertainment more than once or twice a year.
This summer, ereader penetration was running at 15% of households with another 15% planning to buy this past holiday season. If two thirds of those actually bought readers, we should be at 25% penetration.

I doubt the US market for ereaders runs much bigger than 30%. For comparison, TV penetration runs 97% and PC penetration about 75%.

BTW, with the US holding about 120 Million households, 25 percent works out to 30 million households, 33% to 40 million. A good portion of those will be multiple reader households, so we're looking at a max installed base of something in the 50-60 million range, especially factoring in hand-me-downs.

Kindle sales for 2010 were generally estimated in the 14 million range and 2011 estimates ran from 16 to 22 depending on the source. Likewise, depending on the source, *North America* makes up 60-80% of the total eink reader market and Amazon sells half of the world total.

Anyway you slice it, eink readers are a *big* business and Amazon sells a honking lot of Kindles in and out of the US, with international sales due for big boosts out of continental europe, brazil, and whatever market they target next.

So any US sales flattening shouldn't have much of an impact on their bottom line, but the flattening isn't far away if its not here yet.

Ah, but I've purchased about 10 in the past year....skews the figures perhaps.

[GA Russell]

FWIW, I know a few people with tablets (iPad or Galaxy Tab), and I don't think that a single one reads books on it.

I think it's a mistake to think that the sale of LCD tablets has reduced the sale of eInk readers. I think they are two different markets, notwithstanding the practices of some of our members here.

[Dimwit]

Originally Posted by fjtorres

I doubt the US market for ereaders runs much bigger than 30%. For comparison, TV penetration runs 97% and PC penetration about 75%.

BTW, with the US holding about 120 Million households, 25 percent works out to 30 million households, 33% to 40 million. A good portion of those will be multiple reader households, so we're looking at a max installed base of something in the 50-60 million range, especially factoring in hand-me-downs.

Kindle sales for 2010 were generally estimated in the 14 million range and 2011 estimates ran from 16 to 22 depending on the source. Likewise, depending on the source, *North America* makes up 60-80% of the total eink reader market and Amazon sells half of the world total.

Anyway you slice it, eink readers are a *big* business and Amazon sells a honking lot of Kindles in and out of the US, with international sales due for big boosts out of continental europe, brazil, and whatever market they target next.

So any US sales flattening shouldn't have much of an impact on their bottom line, but the flattening isn't far away if its not here yet.

I certainly don't see any problem with those projections but it's the market that's key. These things are aimed at the cellphone crowd. New, more capable models will appear constantly and they will rebuy every 2 to 3 years. The absolute numbers aren't critical, but the ability of the designers/manufacturers to come up with new is vital.

This where B&N has to worry and is probably really wanting out from under the development cycle. If they can offload the Nook like Chapters/Indigo did with the Kobo then they are golden. They can continue to market "FRESH, NEW, BETTER" and not have it drain the coffers dry for development.

[BearMountainBooks]

Originally Posted by SensualPoet

It's also worth underlining how much the 2011 absence of Amazon in the "touch reader" space allowed other players an opportunity build their businesses (Nook Touch, Kobo Touch and, sadly, missed opportunity for the then over-priced Sony PRS series). At least, until November ...

The moment Amazon rounded out their line-up with a Kindle Touch -- B&N felt the impact directly. The Kindle with Special Offers pricing probably did the most damage. Kindle was relentless with very simple mass advertising: the Kindle is wonderful and its $79. The moment someone wonders into Best Buy looking for a Nook and it's drastically more than $79 -- never mind it is more capable -- the sales conversation gets muddied, diverted or lost altogether.

I'm late to the conversation, but from the forums I was and am on, it wasn't really the touch aspect (That didn't hurt.) It was access to library downloads. There were threads and threads of people who bought simply for the library access--and some of them already had Kindles. Then, there were threads and threads of people who "Haven't spent one dime on books--getting all freebies and library books." If you visit the B&N nook forum you see a much larger percentage of people looking for lending sites, lending buddies and library info.

B&N has a referral program like Amazon's associate program but when Kindle came out and in the years after, there were many, many sites doing book sorting and referring. With B&N there were a few. There are still a few, but I think the more successful ones are like Books on the Knob who find books in more than one market (B&N, Sony, UK, US, Australia, Kindle) and so on. I followed two B&N only sites and both stopped posting within 6 months. No idea if it was lack of traffic or just too much work to sort.

I do think there is room in the market for both readers (as well as the others) but any time there is shaky financial news, it can impact sales.

[fjtorres]

Originally Posted by BearMountainBooks

I'm late to the conversation, but from the forums I was and am on, it wasn't really the touch aspect (That didn't hurt.) It was access to library downloads. There were threads and threads of people who bought simply for the library access--and some of them already had Kindles. Then, there were threads and threads of people who "Haven't spent one dime on books--getting all freebies and library books." If you visit the B&N nook forum you see a much larger percentage of people looking for lending sites, lending buddies and library info.

Hmm...
Basically, you're suggesting that people *understand* and accept that Kindles' primary role is as an Amazon storefront and use it as such, whereas Nook customers are more likely to see it as a vehicle for free content...
Interesting thought...

eBooks is such a new business that nobody really understands how consumers behavior breaks out.

If it holds into the larger population (internet communities being self-selecting samples and all-that) it might explain the puzzling assertions that Nook is a money-losing operation despite its size. By all rights, 29% of the US market *should* be a money maker. But if a portion of that installed base is composed of non-buyers, the razor/blade model falls apart. Trouble lies that way.

[Fbone]

Originally Posted by fjtorres

If it holds into the larger population (internet communities being self-selecting samples and all-that) it might explain the puzzling assertions that Nook is a money-losing operation despite its size. By all rights, 29% of the US market *should* be a money maker. But if a portion of that installed base is composed of non-buyers, the razor/blade model falls apart. Trouble lies that way.

Absolutely, B&N and Amazon (and others) don't make anything on the freebies. And what is the net profit on a 99 cent book? Rough estimate is 65 cents minus transaction costs of 24 cents (new debit card law) is 41 cents max. You better be selling millions and millions a day just to be noticeable on a balance sheet. My guess is anything under $2.99 is at cost or less otherwise they would have made the 70/30 cutoff lower.

[BearMountainBooks]

Originally Posted by fjtorres

Hmm...
Basically, you're suggesting that people *understand* and accept that Kindles' primary role is as an Amazon storefront and use it as such, whereas Nook customers are more likely to see it as a vehicle for free content...
Interesting thought...

eBooks is such a new business that nobody really understands how consumers behavior breaks out.

If it holds into the larger population (internet communities being self-selecting samples and all-that) it might explain the puzzling assertions that Nook is a money-losing operation despite its size. By all rights, 29% of the US market *should* be a money maker. But if a portion of that installed base is composed of non-buyers, the razor/blade model falls apart. Trouble lies that way.

I was pretty surprised when I joined the two B&N forums. The most popular thread was the Philly library thread and how to join and discussions of joining other libraries and lending. In talking with people looking at readers and trying to decide, the number one thing they said about nook was, "library access." Not touch, not local store--it was library access over and over. As kindle became library-usable, some of those same conversations appeared on Kindle forums, but NOTHING like the popularity I saw on Nook forums.

When a friend of mine was considering a reader, she wanted a Kindle--but was leaning to the nook because of library books until I mentioned that Kindle had just announced the library lending would be live shortly. She bought the kindle.

COMPLETELY anecdotal evidence, my sales took a pretty big hit when Kindle library lending became available.

I still see the same pattern on the Nook forums that I am on--new threads asking for the best lending groups and that sort of thing. To a lesser degree I see it on Kindle forums although I'd also say that participation in such forums is down by better than half (Some of the newness wearing off, moving on to other things or now that people know the ins and outs, they don't need forums as much.)

So in some ways I think Nook targeted a different kind of reader (intentionally or unintentionally.) The library feature was and still is a big hit. I have another friend who is a Kindle owner. She has been picking up the freebies as they show up in the thousands, but once library lending started, she began reading more on her kindle--instead of checking out physical copies, she gets the Kindle copies. I don't know if she buys less books as a result of the Kindle library feature--she was always a big library user and nothing is likely to change that.

I don't know what it means for the future of Kindles or Nooks--or B&N, but I think from the start Kindle did view the reader as a way to sell content, whereas I'm not sure B&N had a huge plan either way. The fact that they sold less than expected this Christmas doesn't bode particularly well for the company or the e-readers.

[bigtext]

Correct me if I'm wrong, but this seems to be the real weak spot of eink readers

Originally Posted by fjtorres

The tea leaf readers are reporting that they expect eink Kindle sales to be down.
Worse, eink *is* reporting a decline in monthly sales for december.
http://paidcontent.org/article/419-a...-e-readers/P0/

Is it correct to assume that there is only one manufacturer of eink technology? Compare that to all the companies who have an incentive to be in the LCD manufacturing business for cellphones, televisions, and PCs. Things that almost everyone wants and "need", especially the younger generations.

If the company that manufactures e-ink goes under what is there to replace it? What company or investors will resurrect the technology given that it began losing ground when the primary sellers (Amazon, B&N) started seeing more demand for the color "readers". Given this demand and the fact that Amazon and B&N can make even more money selling apps and videos with the color reader it is fair to assume that their advertising dollars will be spent on promoting these "readers" and putting e-ink readers on the back burner.

I think its fair to say that Amazon's advertising and hype of eink created a much larger market for it than existed prior. My impression is that B&N, to stay in the game against a competitor that has already hurt their business, was forced into selling and promoting an e-ink device also. And if the company that manufactured eink business depends on Amazon's and B&Ns marketing muscle to have enough demand to meet cost then that company is in trouble because Amazon's and B&N profits are no longer tied to their success.

[Fbone]

Originally Posted by BearMountainBooks

I was pretty surprised when I joined the two B&N forums. The most popular thread was the Philly library thread and how to join and discussions of joining other libraries and lending. In talking with people looking at readers and trying to decide, the number one thing they said about nook was, "library access." Not touch, not local store--it was library access over and over. As kindle became library-usable, some of those same conversations appeared on Kindle forums, but NOTHING like the popularity I saw on Nook forums.

Library usage- Customers love it and use it extensively. B&N and Amazon are noticing it. We can assume the publishers are too and this is why they are placing restrictions on it. Or trying to. Library access was more popular than expected.

[kennyc]

Why buy something you are only going to use once?

[fjtorres]

Originally Posted by bigtext

And if the company that manufactured eink business depends on Amazon's and B&Ns marketing muscle to have enough demand to meet cost then that company is in trouble because Amazon's and B&N profits are no longer tied to their success.

E-ink, the company is *not* solely dependent on eink panel sales.
They have other revenue streams, some from LCD panels.
e-ink panels themselves are not dependent solely on reader sales, much less just Amazon and B&N (there are dozens of companies selling the things, most in markets that haven't started down the road to mainstreaming). Eink tech is going into signage uses and has been used for watches and other gadgets.

Also, E-ink isn't the only company selling electrophoretic displays, SiPix and several others are playing at the margins.

Don't expect Eink readers to collapse; the category is to big to just vanish, no matter what multi-function fans might want to believe. The only thing that is in play is that nobody knows what the natural market for the devices is and what its long term economics really are like.

We've been this way before with other nascent technology products; calculators, gaming consoles, PCs, media players, and even smartphones. Some turned out to be big, others small.

One thing *all* have in common, though: all had at least one big shakeout and not all the early players survived it.

[bigtext]

Originally Posted by fjtorres

They have other revenue streams, some from LCD panels

Thanks for the information. I'm glad to hear this and this does give me some more hope. Playing devil's advocate here, its important to keep in mind what started this whole thread. B&N talking about selling off part of their business in hopes of not having one area of the company sink the area that actually shows potential. It would NOT be unusual for a larger corporation to split off and sell a division or even eliminate it entirely if it wasn't profitable. There are many examples of this. Look at Microsoft with their Zune player or the experience with Palm. Different circumstances and situations to be sure, but it does happen.

It's good to hear there are other companies involved in eink also.

Originally Posted by fjtorres

Don't expect Eink readers to collapse; the category is to big to just vanish, no matter what multi-function fans might want to believe

I don't think multi-function fans really care if it collapses or not. The presence or absence of the eink reader has no impact on them. They are set and the Kindle Fire and Nook Tablet make it clear that things are moving in a direction that supports what they want. I'm not even sure there is such a thing as multi-function "fans" who are really invested to believe one way or the other like you would have in Android vs. Apple. The battles there seem to me to be more along the lines do you want to see the future of hardware\content\apps\etc exist in a more open-source, competitive type space or more of a walled garden approach.

I think the most interesting effect will be amongst those people who are eink Kindle\Nook owners who have decided to "upgrade" to Kindle Fire\Nook Color. What type of impact do losing these types of readers make on the eink device sales long term? These are people who we can assume are dedicated enough readers to have purchased an eink device in the past, but are perfectly content with moving on to the color tablet devices. I'm sure there are people here on this forum who can speak to what motivated them on this decision. Obviously they have less eye strain concerns. Maybe they don't read for long periods of time?

In any case, I hope your predictions are correct and we will still have a choice for eink five or ten years down the road.

[BearMountainBooks]

Originally Posted by Fbone

Library usage- Customers love it and use it extensively. B&N and Amazon are noticing it. We can assume the publishers are too and this is why they are placing restrictions on it. Or trying to. Library access was more popular than expected.

Agreed. The publishers will have to have some sort of recurring revenue from it or they won't do it anymore. Private companies (like amazon is trying to do) will continue to try and work that recurring revenue deal to be able to lend, but it remains to be seen how and if it will work.

The whole idea behind freebies (For not just the retailer, but the author) is to get people to buy the next book or other books. I'm following a few threads now on that subject as authors try the freebie thing with Amazon's select program (the exclusive to Amazon). Most of the results indicate that if a book was selling fairly well anyway, it gets a nice bump and then continues to sell well anyway. The ones that weren't selling well get downloads and a smaller bump that still doesn't shoot the book into the lists that keep the book selling (movers and shakers, top fantasy, etc.)

Some authors miss this point; they have one book and they put it in the freebie bin hoping that sales just continue after it is no longer free. But they have nothing else on offer or only short stories and...let's face it. Even if 5k download your freebie, only a small percentage will read it--and not necessarily soon. Of those that read it only a smaller percentage might be moved to see what else that author wrote. So it's a fairly risky and hopeful and long-term strategy for the author.

Now those who were already selling well, when they entered the program, Amazon picked up some of these nicely selling books and gave them some additional promo (or others in the series.) Deborah Greary (I may be spelling her first name wrong, but I think I got last name right.) is one such example. She went exclusive and then suddenly popped into the "Books of the month for under $3.99.) But I haven't seen a book that 1. wasn't exclusive and 2. wasn't already a decent seller make that list (doesn't mean it hasn't happened, but I haven't heard about it.)

FWIW. I'm not even sure it means anything. But free books do not a career or living make--not for Amazon or the author. So at some point the model will have to shift. Same for B&N. If they are selling the Nook at cost, they MUST find a way to get people to the store to buy content--or it will fail.

[fjtorres]

Originally Posted by BearMountainBooks

But free books do not a career or living make--not for Amazon or the author. So at some point the model will have to shift.

Free books are a promotional tool, plain and simple.
And they serve different purposes for the retailer and the author.

They can be used to promote the retailer's platform, they can be used to promote an author's brand, or to promote the actual story being peddled.
Remember, most free ebooks on Amazon (and most *new* $0.99 offerings) are offered that way *temporarily*. Free isn't a business model for authors. ($0.99 is a whole different story, though.)

If you're a total unknown as an author, giving away 5000 copies might, in fact, result in maybe 500 reads (Assuming the thing is good enough to get that many people to finish it) and maybe 5 reviews. Some might say that is 500 lost sales, but others would argue that a good product with five reviews has a better chance to sell than one with none. ;-)

As you pointed out, some people get ebook readers primarily to pick up free reads so the platform holders need to "discount" their install base numbers appropriately to temper their revenue and sales expectations. These "customers' " practices will impact the platform holder but not the authors, though, because those people wouldn't have bought the book anyway.

So, I expect the practice of (temporarily) free ebooks (especially at launch) to continue. And I expect to see ebooks dropping to $0.99 for a week every few months to become a common practice among authors interested in maintaining their visibility, at least as long as there is a large pool of buyers trolling the top-sellers list for new reads.
Before we see a change, we'll need broad adoption of new discovery mechanisms among the buyers.

[Fbone]

Originally Posted by fjtorres

Before we see a change, we'll need broad adoption of new discovery mechanisms among the buyers.

Let's hope retailers can hold on until then. No one is making money on free ebooks. (Except Overdrive) And with more and more websites offering content/listings/emails/tweets/text msgs of newly available free stuff (including MR) this mechanism may last for quite some time. Today we have 2800 freebies on Amazon alone according to ereaderIQ. Who cares what other books the author wrote and I am required to purchase for $2.99. I have thousand more free items possibly even better to read yet.