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Originally posted Feb. 3, 2011, and not *exactly* right:

The Real Story Behind Those Single-Digit Kindle Margins:

Amazon Has Positioned Itself for a 50% Overall Market Share

in the U.S. Book Business

(Editor’s Note: I originally published this post on February 3, 2011. The bottom-line prediction that “before the end of 2012, Amazon could own more than half of the U.S. book business across all formats,” isn’t quite right. But there seems to be increasing evidence that, to borrow a phrase from futurist Ray Kurzweil, it could soon prove to be “essentially correct.” What’s your take? -S.W.)
By Steve Windwalker
Editor, Kindle Nation Daily

Amazon’s (AMZN) report of quarterly earnings last Thursday was greeted widely as an indication that the company can’t generate sufficient margins with Kindle devices and content. That interpretation has been reasonably straightforward, with strong echoes of sentiments that characterized critics’ views of Amazon during its early pre-profitability years in the late 1990s and into the 21st century.

“Despite rapid growth in Kindle hardware and content sales,” so this thinking goes, “the combination of competition and Amazon’s penchant for pursuing loss-leader strategies to capture market share have forced Kindle-associated margins so low that, as the Kindle portion of Amazon’s overall business grows, it will lead inevitably to erosion of profits.”

Due in part to this interpretation, Amazon’s share price, which closed Thursday within 3 percent of its all-time trading high, dipped dramatically in after-hours trading that day and has gained back only a fraction of those losses since.

But the low-margins interpretation misses another, much more dramatic story. The big story is that in just three years Amazon has positioned itself to triple its overall share of the U.S. book business for all formats. Before the end of 2012, Amazon could own more than half of the U.S. book business across all formats.

How stunning a development would that be? Prior to the launch of the Kindle in 2007, Amazon was widely considered to account, at most, for somewhere around 15 percent of all U.S. book sales in all formats by all retailers.

Amazon has not reached 50 per cent yet, and is still far from that range where all titles are concerned. But one of the most reliable crystal balls for determining future bookselling trends is to examine and parse developments as they play out with individual bestsellers in the overall book marketplace, when numbers are available.

Last week both Amazon and one of its most consistent publishing business critics, paid subscription site Publishers’ Marketplace, shined their respective spotlights on sale trends that have been playing out with a single bestselling novel, Emma Donoghue’s Room. The hardcover, discounted by Amazon to $14.41 (20 percent higher than the Kindle edition), is #43 in the main Amazon store. It is #13 among far fewer available bestsellers listed in the Apple (AAPL) iBooks store, and #35 on the Barnes & Noble (BKS) Nook. Importantly for these discussions, the book has also been on the IndieBound bestseller list for independent brick-and-mortar booksellers for the past 20 weeks, and currently stands at #4.)

Helpfully, it turns out that we know a lot about Room sales, thanks to Amazon and Publisher’s Marketplace.

Russ Grandinetti, Amazon’s vice-president for Kindle Content,told a Digital Book World conference last week that, for Room, “total Kindle sales are equal to 85 percent of Nielsen BookScan’s print sales number.” Publisher’s Marketplace then performed some very helpful extrapolations and further calculations arriving here:

If the BookScan number is 80 percent of the print sales total, then Kindle sales here would 68 percent of all print. More importantly, though, to calculate what percentage of the book’s total sale was on Kindle, you need to add Kindle + BookScan + that other 20 percent together and look at Kindle as a percentage of that sum. So it’s 68 over 168, meaning that Kindle sales were 40 percent of the total sale in all formats for Room.

But it doesn’t end there. Grandinetti and other Amazon spokespersons said repeatedly last week that Kindle editions were currently outselling Amazon sales of their hardcover counterparts by a 3-to-1 margin, which means that Amazon hardcovers equal about 25 per cent of combined sales for these titles. Even if hardcover sales of Room fell short of this and constituted only 20 percent of Amazon’s combined, this would mean that total Amazon sales of Room constitutes about 50 percent of the title’s total sales in all formats.

It’s just one title, but what we’ve been seeing quite often with Amazon and the Kindle over the past few years is that what happens first with one title happens subsequently with more titles and then, ultimately, with most titles. It was a big deal in 2009 when Kindle sales of The Lost Symbol outstripped Amazon’s hardcover sales right from the drop, and a little over a year later Amazon announced that all Kindle editions were outselling hardcover units for the same titles, across the board.

But there are other forces at play, and I’m not just talking about the fact that Room is one of the strongest sellers over the past five months for indie booksellers. Back on January 5 when USA Today reported that 19 of the top 50 titles on its bestseller list had sold more ebook than print copies for the previous week, publishing industry insiders blamed Santa Claus and downplayed the significance.

“What’s most interesting is what happens next week or over the next month. About 3 million to 5 million e-readers were activated last week. Will the people who got them keep downloading e-books, and at what rate?” asked Publisher’s Marketplace founder Michael Cader. Bowker’s Kelly Gallagher, too often a cheerleader for the status quo in publishing, was quoted saying that the surge in e-book sales “is not a sustainable trend.”

Right. Well, that was January 5. Now it’s February 2, and that trend, far from declining, has actually become stronger. On USA Today‘s most recent bestseller list, for the week ended January 23, the number of titles with greater ebook sales than print sales had grown from the 18-19 range for the first three weeks after Christmas to 23 of the top 50.

There is a wide range of factors that are likely to push the velocity of change even faster for ebook sales specifically and Amazon’s share of the overall bookselling market in general, but the fact that brick and mortar bookstores are closing at a faster rate than ever, from local indies to chains, is bound to contribute to a snowballing effect. The imminent bankruptcy of the Borders (BGP) chain is this week’s headline, but it’s just the headline. And despite the recent fuss about the new partnership for ebook sales between Google (GOOG) and the American Booksellers Association, it is inevitable that as ebook sales rise, brick-and-mortar stores will decline and publishers will gradually lessen their investment both in the bookstore-based physical distribution network and in print editions.

Finally, there’s Amazon’s not-so-secret weapon for building retail market share for its Kindle and print content sales: Direct publishing, Amazon exclusives, and indie authors. Recent developments in this area deserve a post all their own, but for now we’ll just note that 36 of the top 100 bestselling ebooks in the Kindle Store are published either by indie, direct-to-Kindle authors or by Amazon publishing subsidiary programs such as AmazonEncore, AmazonCrossing, or Kindle Singles. The vast majority of these titles are either not listed or not selling at any appreciable level on any other retail venue, and they are not yet included on any bestseller lists other than Amazon’s own, although their sales would in many cases justify such inclusion. But the sales are there, the profits are there, and once again Amazon has positioned itself to dominate the market share for this, the fastest growing sector of the fastest growing sector in bookselling.

Which brings us back to Amazon executive Grandinetti, and his summary point in last week’s discussions: “However fast you think this change is happening, its probably happening faster than you think.”

Whatever the rate of change, and whatever the velocity of change, most of the other players in the book business and many of Amazon’s market analysts and investors may be missing the point as to exactly where this change leads. AMZN is not a day-traders’ stock, but for investors who take a long view it may have just moved into a new and very positive category.

If Amazon has decided to accept single-digit margins during this Kindle “investment phase,” and the result is that the company has set itself up to own a 50 per cent market share of the entire U.S. book business by the end of 2012, there will be no shortage of happy investors — and devastated competitors — at that point in the relatively near future.

Are You Among the 51,000 Readers Who Will Connect with Kindle Nation Today? Yes? Then THANK YOU!

By Steve Windwalker

For just a moment here, can we take a deep breath and express our gratitude to the thousands of readers who interact with Kindle Nation every day? Yes, that’s you, and we are very, very grateful.

On way or another, we connect with over 51,000 readers every day.

In the past 30 days there have been 71,331 unique visits to our website, totaling 132,970 page views.

30,811 of you connect with us through Facebook, 15,042 though our email newsletter, and 1,790 through Twitter.

Over 5,000 of you are paid subscribers to the Kindle edition of our blog.

You account for well over 10,000 Amazon purchases every month directly from our website — all paid items.

You regularly send books zooming up the Kindle Store bestseller list, and you continue, in our view, to qualify as the greatest readers in the world.

You’re awesome, you rock, and we will continue to do our best to serve your very diverse interests.

Thank you.

We’ll continue to arrange for freebies and goodies and giveaways, but along the way, more importantly, we’ll try even harder to provide great content for Kindle readers.

We’ve been working at this for nearly four years now, beginning with the book that you made the #1 book in the entire Kindle Store for the full calendar year 2008. We sold 50 copies of that book in December 2007, and somehow we’ve gone from there to having to make payroll every month, but it’s all good. In the next few weeks we’ll be bring out new books on the Kindle Keyboard, the Kindle Touch, and the Kindle Fire, but we know that they’ll all need updating before long.

In fact every day feels like Day One of the Kindle Revolution to us. And we’re planning for a really, really big Day Two.

As a way of thanking you some more.




We Select a Kindle Tablet Sweepstakes Winner, and Just in the Nick of Time, We Have Rumors of 4 Million Kindle Tablets Slated for Production!

By Steve Windwalker

The fun continued yesterday at Kindle Nation as we closed out our month-long Kindle Tablet Sweepstakes by selecting the name of grand prize winner Linda Ronne at random from the names of 4,233 Kindle Nation citizens who entered.

Although we have already given out two brand-new Kindles to Kindle Nation citizens who won our earlier sweepstakes in May and June, this one was a little different because, well, the grand prize does not actually exist yet! You may recall that this is the first sweepstakes involving a Kindle Tablet, and we went to considerable pains to make sure that our Grand Price winner would have plenty of peace of mind while waiting for Amazon to announce a Kindle Tablet. (See the legalese at the end of this post for the details of how we worded things to be fair to all concerned.)

Here’s what we said to Linda yesterday when we told her she was the winner:

“So now comes the tough part — waiting patiently for Amazon to announce its tablet. Our totally speculative guess is that they might announce it in late July for shipment in late August, because that worked so well with the Kindle 3 in 2010. But we shall see!”

But timing is everything, right? We just received word via a key member of our development team, Mark in Thailand, who shared a post from the UK about a report from Yenting Chen and Adam Hwang at DIGITIMES stating that “Amazon is poised to step into tablet PCs and will launch models as soon as August-September, with targeted global sales of four million units for 2011, according to Taiwan-based component makers.”

Sounds right to us, and we like the timing a lot! The only thing that doesn’t ring true for me is the projection of four million units for 2011. I’m thinking that if Amazon only gets 4 million units produced this year, the Kindle Tablet will be sold out for most of the last six weeks of the year, and we wouldn’t like to see that.

If you’re reading this, you may well be among over 4,000 Kindle Nation citizens who have signed up to receive our notification email when Amazon makes the Kindle Tablet available for pre-orders. We’re already preparing that email with all models and purchasing options spelled out, so that you aren’t among those who’s left waiting if the Kindle Tablet does go out of stock.

And, oh yes, here’s the small print from our sweepstakes rules:

Grand prize

There is one prize, total value estimated at between $200 and $750, consisting of a base model Kindle Tablet electronic device, which the sponsor expects to be manufactured and offered for sale by Amazon.com at some unknown time in 2011. If a base model Kindle Tablet electronic device is not manufactured and offered for sale by Amazon.com by December 18, 2011, the sponsor will allow the winner to substitute any existing Kindle product valued at $400 or less, or an Amazon.com gift certificate for $400. The phrase “base model Kindle Tablet electronic device” herein refers to the lowest-priced Kindle Tablet electronic device offered by Amazon at time of the device’s launch announcement. The winning prize will be shipped to the winner directly from Amazon.com at the sponsor’s expense, and the winner will have sole discretion as to whether she wishes to return the prize either for an account credit or for an upgrade to a higher-priced model.

A Tale of Two Indie Authors: John Locke Becomes the First Independently Published Author to Join the “Kindle Million Club,” and Amanda Hocking Goes Big League

Here are two cases of very big news for the two most successful “direct to Kindle” indie authors to date.

First, Amazon announced moments ago that John Locke has become the first indie author to sell a million Kindle books, with the following titles:

“As of yesterday, John Locke has sold 1,010,370 Kindle books using Kindle Direct Publishing (KDP),” said Amazon’s release.

Locke said he studied the ebook market, looked at pricing of ebooks, and decided to become the bestselling author of 99 Cent books bar none.

He did it.

His 10th book, a tell-all about how he marketed his way to success, breaks the pattern.  How I Sold 1 Million eBooks In 5 Months costs $4.99.

Congratulations, John! See the entire Amazon release at the end of this post.

Meanwhile, the author who could become the next “Kindle Million Club” member, Amanda Hocking, is the subject of a pretty interesting full-length article in yesterday’s New York Times Sunday Magazine. It’s a good read whether you are a Hocking fan or simply someone interested in what’s going on in publishing and the Kindlesphere.

Hocking was outselling Locke in the Kindle store until around the time she signed a $2 million four-book contract with agency model publisher, St. Martin’s Press (MacMillan). She’s still selling 9,000 books a day, which is nothing to sneeze at.

Does Hocking’s contract mean she is no longer an indie author?

Not to me. For one thing, one important characteristic that Hocking and Locke share is that each of them writes very fast. Very, very fast. Like it takes them a month or two to complete a novel.

So even if Hocking has four books tied up with a traditional publisher, that need not keep her from bringing beaucoup other books direct to Kindle. And when she looks back on the decade as a millionaire 35-year-old in 2020 or so, I’ll be surprised if she doesn’t find that she made a lot more money with direct publishing than she did with a traditional publisher. But we’ll see.

Here’s Amazon’s release today:

John Locke Becomes the First Independently Published Author to Join the “Kindle Million Club”
Locke passes 1 million Kindle books sold using Kindle Direct Publishing

SEATTLE, Jun 20, 2011 (BUSINESS WIRE) –(NASDAQ: AMZN) – Amazon.com today announced that John Locke has become the eighth author to sell over 1 million Kindle books, becoming the newest member of the “Kindle Million Club,” and the first independently published author to receive this distinction. As of yesterday, John Locke has sold 1,010,370 Kindle books using Kindle Direct Publishing (KDP). Kindle Direct Publishing is a fast and easy way for publishers and authors to start selling to Kindle customers worldwide via Kindle, Kindle 3G, Kindle with Special Offers, Kindle 3G with Special Offers, Kindle DX, iPad, iPod touch, iPhone, PC, Mac and Android-based devices. The Kindle Million Club recognizes authors whose books have sold over 1 million paid copies in the Kindle Store. Locke joins Stieg Larsson, James Patterson, Nora Roberts, Charlaine Harris, Lee Child, Suzanne Collins and Michael Connelly in the Kindle Million Club.

“It’s so exciting that self-publishing has allowed John Locke to achieve a milestone like this,” said Russ Grandinetti, Vice President of Kindle Content. “We’re happy to see Kindle Direct Publishing succeeding for both authors and customers and are proud to welcome him to the Kindle Million Club.”

“Kindle Direct Publishing has provided an opportunity for independent authors to compete on a level playing field with the giants of the book selling industry,” said John Locke. “Not only did KDP give me a chance, they helped at every turn. Quite simply, KDP is the greatest friend an author can have.”

John Locke, of Louisville, KY., is the internationally bestselling author of nine novels including “Vegas Moon,” “Wish List,” “A Girl Like You,” “Follow the Stone,” “Don’t Poke the Bear!” and the New York Times bestselling eBook, “Saving Rachel.” Locke’s latest book, “How I Sold 1 Million eBooks in 5 Months,” is a how-to marketing guide for self-published authors.

Like all Kindle books, Locke’s books are “Buy Once, Read Everywhere”– customers can purchase these books and read them on the third-generation Kindles that start at $114 with the new high-contrast Pearl e-ink display, as well on iPads, iPod touches, iPhones, Macs, PCs, BlackBerrys, Windows Phones and Android-based devices. Amazon’s Whispersync technology syncs your place across devices, so you can pick up where you left off. With Kindle Worry-Free Archive, books you purchase from the Kindle Store are automatically backed up online in your Kindle library on Amazon, where they can be re-downloaded wirelessly for free, anytime.


CITI Analyst Estimates 16 Million Kindle Sales in 2011; 26 Million Kindles and 752 Million Kindle Books in 2012 … And We Think He’s Right

By Steve Windwalker
Originally posted at BookGorilla.com

Following up on our post over at Kindle Nation yesterday about Citigroup analyst Mark Mahaney’s predictions that the Kindle’s slice of total Amazon revenues will continue to rise this year and next, we note (via TechCrunch) that Mahaney has also increased his estimate of how many Kindle devices Amazon will sell this year from 16.5 million to 17.5 million units. In 2012, Mahaney projects another 26 million Kindles to be sold.

These are just projections, but they are pretty dazzling projections. And we think he’s pretty close.

Our sister blog Kindle Nation published a post back on January 13 — Just How Big is the Kindle Revolution? Our Estimates: Amazon Has Sold 12 Million Kindles, and There Were Over 10 Million Paid Kindle eBook Sales in the Last Week of 2010 — where we estimated Amazon’s Kindle unit sales had reached 12 million at that point in mid-January, including about 8 million Kindles sold during calendar year 2010. We went on to project that the “installed base” of Kindles would reach 22 million by the end of 2011 and 35 million by the end of 2012. I don’t recall anyone suggesting that our January numbers were conservative, but Mahaney has left us in the dust: his numbers translate into an “installed base” that that would be about 18% higher than our projection for the end of 2011 and about 50% higher than our projection for the end of 2012.

While the number of Kindles sold is important, the rubber actually hits the road when we look at Mahaney’s projection for the number of Kindle books sold over this period, because that’s where the ebook revolution is being fought, and those are the numbers that will be etched on traditional publishers’ gravestones — apparently much sooner than mainstream projections might have had us believe.

According to Mahaney:

  • there were 124 million Kindle books sold in 2010;
  • there will be 314 million Kindle books sold in 2011; and
  • there will be 752 million Kindle books sold in 2012.

We estimated back in January that Amazon had sold 10 million paid Kindle books during the final week of 2010, and given the fact that the final week of the year will always be far and away the biggest week of the year for ebook sales, this 10-million unit figure seems entirely consistent with Mahaney’s estimates. Taken together, the impact of these numbers is that we would not be surprised to see 25 million paid Kindle books sold the final week of this year, and 50 million next.

Cloud Launch Sweet Music for Amazon Shares; Apple Bitten Hard

“This is huge,” we opined last Tuesday when Amazon announced the launch of cloud services that give its music and audio products a big edge over the “You Can’t Take It With You” offerings from Apple’s iTunes store. Our headline and the link to our story:

Taking a Huge Bite Out of Apple’s Music Ecosystem: Amazon Brings Magical Kindle-Style Customer-Centric Convenience and Connectivity to Music with the Amazon Cloud Drive and Cloud Player

It’s huge for Kindle fans because it’s a big step down the path that will lead inevitably to an Android-based Kindle-branded tablet that will wash your car and steam the soy for your latte, but it is also rocking the markets.

We noticed right away that investors seemed to see the same Amazon upside and Apple downside that was apparent to us. Apple has also been hit by Japan-related supplier issues, but after a week the market’s verdict seems dramatic. The green line reflects Amazon’s share price since Monday, March 28; the red line represents the NASDAQ composite index and the blue line will take you to the airport and Revere Beach represents Apple’s share price.

As anyone who watches the markets knows, there are very, very few weeks when the NASDAQ outperforms AAPL by more than 5 points.