What happens when Apple responds to the Amazon Kindle?

I must say, I’m beginning to admire Henry Blodget for his unabashed willingness to ignore any irony others might see in his analytical posts about Amazon.com, like this one that looks at Citi analyst Mark Mahaney’s report that the Amazon Kindle could be a $750 million iPod-like franchise in a couple of years.

Blodget does not explicitly agree with the prediction, indeed, he points out some holes in the theory. He doesn’t fully repudiate it, however.

I’m clearly not a financial analyst and so any disagreements I may have with Mahaney’s predictions have nothing to do with market-share numbers. I have no idea about the revenues or bottom-line impact of future Kindle developments. However, since some of his analysis is based on his personal experience with the device, I feel I can at least weigh in on that front.

First, let me say I use the Kindle frequently. Not quite daily, but several times a week. My review of the Kindle from last December is still accurate. I haven’t really been surprised by anything about it during the past five months. It’s still a clunky, poorly designed piece of hardware with a ridiculous interface. Yet the EVDO (digital cellular)-powered feature that allows one to instantly purchase books from Amazon for less than $10 is near magic. That price-point for books and the instant download are what make the device work for me — and, apparently, the Citi analyst, also.

However, I stand by my earlier prediction — and this is where I find a flaw in Mahaney’s analysis: Apple won’t stand still and let Amazon have this market all to itself. As I’ve written about ad-naseum, a slightly larger iPod Touch linked to eBooks distributed via the iTunes store would match and raise the game with Amazon. At that point, Amazon would be competing with the iTunes distribution channel, but with Amazon hardware that looks and feels like it was designed in Soviet-era Russia.

Also, with Apple in the game, its eBook format would be readable via the Mac or iPhone, as well. The Kindle format is locked into a Kindle device.

As I wrote last November, I’ll continue to use my Kindle until Apple comes out with something like this (even if it’s not in the next couple of weeks):



About Rex Hammock

Founder/ceo of Hammock Inc., the customer media and content company based in Nashville, Tenn. Creator of and head-helper at SmallBusiness.com.
This entry was posted in amazon, apple, books, iphone, ipod, Rumor #3 and tagged , , , . Bookmark the permalink.
  • http://sitening.com/blog Jon Henshaw

    I hope you’re right, because that would be killer. The Kindle looks very interesting to me, but if I could have a somewhat low-power ebook reader that also ran OS X, had a touch screen and WiFi & Mobile features, that would be incredible.

  • http://www.bosacks.com BoSacks

    Rex; You are correct. The Kindle is interesting, and klunky. But it is a pretty good start to a soon to be killer market. . . for many devices. Reading is not going to go away but reading platforms are about to radically morph, change and otherwise be totally reinvented. Why would be a pretty good question? There are several obvious factors on the horizon. The screenager generation is one factor. The rising cost of shipping hard atoms is another. And the third sometimes missed factor is the carbon footprint of moving, converting and shipping dead trees from one place to another. That would be moving and cutting, grinding CO2 eating trees to paint with petroleum based inks to people who may or may not buy the product.
    There is a more elegant solution. And that is and will be digital editions for both books and magazines.

    The Kindle is klunky and so was the Model T.
    Rex, what are you driving today? Still with a Model T? I think not.

    BoSacks
    -30-

  • http://gravitationalpull.net/wp/ Aaron Pressman

    A couple of things the “we hope Apple does an ebook reader” crowd and Mahaney critics are missing:

    1. Apple’s treatment of music publishers, which I actually have no problem with and think is very pro-consumer, has scared the pants off of other media industries, like the movie and TV crowd. I strongly, strongly doubt that Apple could at this point round up much support from publishers for an ebook platform. Meanwhile, Amazon is in bed with publishers five ways til Tuesday.

    2. Although Mahaney uses an iPod analogy, he is not predicting an iPod sized market for Kindle, for all the reasons everyone always cites. In fact, he’s predicting $200 million to $375 million of Kindle sales in 2010, the third full year on the market. In 2004, the third full year of iPod sales, Apple sold 4.4 million units or $1.3 billion worth. Could Kindle be 15% to 20% of the iPod market after three years? Sounds accurate to me.

    And Mahaney is using Apple’s fiscal 2004, which is the 12 months through September 2004, so really those figures understate iPod sales for calendar 2004, which is more comparable to calendar 2010 Kindle sales. If you subtract the December 2003 quarter and add-in the December 2004 quarter, Apple’s actual iPod sales for 2004 were 8.3 million units and $5.4 billion. Now you’re talking Kindle as less than 5% of iPod sales!

    3. Mahaney assumes Kindle is improved and that its price comes down to just under $300 in 2010. You could easily predict an even lower price by then, considering the typical price declines seen in tech products like cell phones, CD players, DVD players, high-def Tvs etc.

    4. The Digitimes report on comments by the Kindle’s e-ink screen manufacturer are credible and haven’t been denied by Amazon or anyone else. That report has Amazon selling 36,000 to 48,000 Kindles per month and ramping up to as much as double that figure by year-end.

  • http://rexblog.com Rex Hammock

    Aaron, I admire your Kindle-osity. The great thing about this is that we get to watch this play out and one of us will get to say “I told you so.”

    As for publishers not dealing with Apple — the book publishing world would be hard-pressed to attempt anything that smacks of restraint-of-trade. Books hold a special place in the psyche of Americans. They are not mere widgets — or mere music, for that matter. When book publishers show favoritism, even in pricing, to one channel of distribution over another, there’s typically some big lawsuit that accompanies it. I’d not like to be the Board of Directors trying to explain to shareholders why they’ve decided to sell books via Amazon, but not the Apple iTunes Store. It would be a bit like saying, “We’ll sell through Borders but not Barnes & Noble.”

    In a post last year (that included a link to your Kindle review), the CEO of the nation’s 7th largest book publisher implied that publishers would be gald to sell eBooks via the iTunes Store — the problem was that Apple hadn’t yet started calling on publishers. Also, I feel that at least one book publisher — Hyperion — would take any calls from Steve Jobs an sign up before the call ended.

  • http://rexblog.com Rex Hammock

    Aaron, I admire your Kindle-osity. The great thing about this is that we get to watch this play out and one of us will get to say “I told you so.”

    As for publishers not dealing with Apple — the book publishing world would be hard-pressed to attempt anything that smacks of restraint-of-trade. Books hold a special place in the psyche of Americans. They are not mere widgets — or mere music, for that matter. When book publishers show favoritism, even in pricing, to one channel of distribution over another, there’s typically some big lawsuit that accompanies it. I’d not like to be the Board of Directors trying to explain to shareholders why they’ve decided to sell books via Amazon, but not the Apple iTunes Store. It would be a bit like saying, “We’ll sell through Borders but not Barnes & Noble.”

    In a post last year (that included a link to your Kindle review), the CEO of the nation’s 7th largest book publisher implied that publishers would be gald to sell eBooks via the iTunes Store — the problem was that Apple hadn’t yet started calling on publishers. Also, I feel that at least one book publisher — Hyperion — would take any calls from Steve Jobs an sign up before the call ended.

  • Nate the great

    Aaron, the numbers in the Digitimes article are wrong. I spoke with a VP from PVI while at the IDPF conference, and he said that it was against policy to discuss production numbers.

  • http://gravitationalpull.net/wp/ Aaron Pressman

    Nate, have you blogged or published about your conversation? And was the vp actually denying the numbers or just trying to backtrack and cover up?

  • Nate the great

    I haven’t blogged about it because I don’t have enough to write about yet. He denied the numbers.. It wasn’t back-peddling

    There are a number of facts you should know before repeating the Digitimes numbers. PVI is the only manufacturer of 6″ Eink screens. PVI’s customers include Jinke, Netronix, Amazon, and Sony. The supposed 60-40 split between Amazon and Sony has to be false because it assumes that Jinke gets 0% of the production.

    Jinke is a Chinese manufacturer. They primarily focus on the mainland China market, but also have several OEM distributors in Europe and Asia. I don’t have hard numbers about Jinke’s production, but I do not see how Jinke could use fewer screens than Sony.

    And yet, according to Digitimes, Jinke doesn’t get any screens at all.

  • http://gravitationalpull.net/wp/ Aaron Pressman

    That is all good stuff — you should blog it. What’s your web site?

  • http://www.prokindle.com ProKindle

    It’s all about readability. Portable devices are great, but who wants to stare at a mini screen when we stare at screens all day long in this digital age! Even if Apple makes a larger touch-screen iPod device that links to e-books, it will have to have this E-Ink technolog or something better to make for a comparable reading experience. Kindle may need numerous improvements, as early products in the markt often do, but it is an outstanding product, and wins hands down if you want a great reading experience!

    Please visit http://www.prokindle.com for more info on the Kindle!