The e-reader is dead, long live the e-reader.
Amazon.com (NASDAQ:AMZN) is on track to sell more than 8 million Kindle electronic-reading devices by the end of the year, exceeding industry analysts’ expectations by at least 60%, according to a report published Tuesday by Bloomberg.
The device’s success isn’t just a feather in Amazon’s cap, but has raised the entire e-reader market, a sector whose prospects began looking grim after the April 2010 launch of Apple’s (NASDAQ: AAPL) iPad tablet PC. After a million iPads sold in just one month last spring, many observers figured it would crumble the nascent e-reader market right as competition was growing between the Kindle and Barnes & Noble’s (NYSE: BKS) Nook.
Those fears have turned out to be unfounded.
At the beginning of October, market analysis firm Forester Research placed Kindle total sales at 5 million since its release in the fall of 2007. Following the release this past August of the third-generation Kindle, a slimmer model that foregoes the 3G wireless communication featured in older models, most investment groups announced sales expectations of between 4 and 5 million Kindles in 2010.
Goldman Sachs, Citigroup, investment firm ThinkEquity and Bloomberg all underestimated sell-through for Amazon’s e-reader. Sandeep Aggarwal, an analyst for Caris & Co (which also only expected just 5 million in sales) told Bloomberg that the “Kindle is gaining an unstoppable traction).”
Even as the iPad grows in popularity, and the broad pricing of tablets comes closer in parity to Amazon’s Kindle and other electronic-books like Sony’s (NYSE: SNE) Reader line, Amazon is successfully founding a firm grip on the e-book market.
The Kindle’s stronger-than-expected sales translates not just to a longer lifespan for the hardware, but an overall strengthening of the Kindle brand. By the time Kindle users are ready to upgrade to a tablet PC, they will already be accustomed to using Amazon’s Kindle digital storefront. A Kindle App is already available on Apple devices, Google’s (NASDAQ:GOOG) Android operating system, and Research in Motion’s (NASDAQ:RIMM) BlackBerry phones. As Piper Jaffray analyst Gene Munster pointed out to Bloomberg as well, Amazon is preparing a Kindle App for Microsoft’s (NASDAQ:MSFT) Windows Phone 7 operating system.
The rhetoric on Wall Street that’s positioned the Kindle and iPad as hardware competitors is moot at this point — the fight between Apple and Amazon is between digital bookstores and on that front, Amazon is trouncing Apple. Due to Apple’s pricing model for the recently launched iBookstore, Random House still doesn’t offer titles on the service, meaning e-book readers looking for hundreds of best-selling titles readily turn to Amazon’s service on Apple’s own platforms.
The future of the Kindle brand is secured. Amazon’s true competitor on the horizon is Google, whose Google Editions bookstore offers an alternative business model that could undermine the Kindle store’s momentum. (Books purchased through Google Editions can be read in any web browser, unlike Kindle store purchases which, are tied to the Kindle App or device.)
As of this writing, Anthony John Agnello did not own a position in any of the stocks named here.
