Tablet and eReader Ownership – How to Read Apple’s Numbers

Later today, Apple will report Q1 figures.  We know much has changed in the tablet market over the last three months.  Earlier this week, Pew Research Center’s Internet & American Life Project reported tablet and eReader ownership (unsurprisingly) surged during the 2011 holiday season.

This is consistent with what I expected (and subsequently reported) following Black Friday and the (unofficial) start of the holidays. Starting with Black Friday (but really through the entire holiday season) several things too place to help drive tablet sales.  First, prices came down significantly.  Prices for many of the “high-end” tablets were marked down significantly and lower priced tablets entered the market in calendar Q4.  A declining price helps up-take.  Secondly, both devices have been in the marketplace for 18+ months and are moving quickly into mass market appeal.  We are moving into the fat part of the adoption curve.  Finally, tablets were the loss-leader for many retailers on Black Friday.  While the volume wasn’t high on a single-store basis, in aggregate there were a plethora of tablets (from a variety of OEMs) bought during the weekend across a myriad of retailers from Best Buy to Big Lots to Radio Shack to Staples, to ToysRUs.  CEA estimates 14 percent of those who purchased tech over the weekend bought a tablet – up from six percent in 2010. eReaders also did well over the weekend with an estimated 15 percent of tech shoppers buying an eReader.  This figure is up from 13 percent in 2010 and two percent during the 2009 Black Friday weekend.

According to Pew, both tablets and eReaders are now owned by about roughly 1/5 of the US population.  More than a third of those living in households earning more than $75,000 (36%) now own a tablet computer and almost a third of those with college educations or higher (31%) own tablets.…

on Amazon’s Digital Book Lending Service

Amazon is now a library – sorta. Last week, Amazon launched the Kindle Owners’ Lending Library which gives Kindle users who own an actual Kindle device (and not just use the Kindle app on other devices) AND are Amazon Prime subscribers access to 5,000+ books they can “borrow.” A few things worth noting: 1) this is probably the first example of a subscription service for digital books. …

Are Multi-function Devices Killing Single Purpose Devices?

IHS iSuppli recently projected sluggish growth for single-purpose consumer tech devices like MP3 players, PNDs, and digital cameras.  At the same time they expect multi-function devices like smartphones and tablets to enjoy strong double-digit growth over the same horizon The IHS iSuppli statement quotes, Jordan Selburn as saying, The success of multipurpose electronic equipment, often coming…

When eReaders grow-up to be Tablets

What happens when eReaders grow up to be tablets? This morphing is already well underway. Barnes & Noble has always referred to the Color Nook as a tablet eReader – with tablet being the operative word. At their event this week. B&N claimed the Color Nook is the top selling android tablet in the market. Amazon – the current king in e-ink eReaders – is getting set to launch potentially two new tablet-oriented devices.  E-ink is actively working to bring to market color e-ink screens and other eReader players are treading towards tablet-like devices.  But this evolution has important implications.

First, network economics for text are very different than they are for video and more data-intensive applications. One of Kindle’s opening hallmark features was the ability of the user to download books via the cellular connection without having to independently contract with the service provider.  In fact, at one point Amazon switched Kindle cellular service from Sprint to ATT and users never took notice.

This won’t be the case as users gain access to more data-intensive offerings. These services are more bandwidth intensive (and therefore costly) than delivering text over the network.  Even though our research has constantly shown most tablet users primarily connect via Wi-Fi, the existing service contracts can’t work when devices are more than books. This will be a key element in the new tablets being launched by Amazon.

App usage on apps-enabled devices will crowd out book usage.  This has ramifications for device pricing.  In the early days of Kindle, Amazon subsidized the content instead of the hardware. This changed as Apple moved into the book business and subsequently eReader OEMs began selling ebooks at the publisher price and subsidized the hardware prices (or atleast began selling them at very low margin).  If the margin is made on the ebooks and their are less ebooks sold as a result of changing use-case scenarios – OEMs will be in search of a new business model to driven margin.  …

Evolutionary Currents: Adding Context to the Nook Color Upgrade

This week Barnes & Noble upgraded the software running on their Nook Color e-reader tablets. Users can now access apps, have email pushed to the device and watch flash videos.

There are a variety of reviews on the web (see: here, here, and here) discussing the anticipated update so here I’ll take a differ tack and discuss two things: what we learn about the evolution of technology in the Nook and what it means for adjacent categories like tablet computers (as opposed to tablet e-readers).

While their initial foray into personal electronics with the original nook might have been more than just an experiment, B&N moved relatively quickly onto the Nook Color. The original Nook was launched in November 2009 and while it was largely sold out during that introductory holiday season, there was likely very little opening stock available. By June 2010 the price had been cut consistent with pricing cuts across the entire e-reader category. Within a year of the initial Nook launch, B&N had a higher-end, full color screen e-ereader tablet and the Nook line collectively was “the company’s biggest bestseller ever in its nearly 40-year history.”

on Kindle Pricing Part II

Last week I provided an estimate of the implied revenue Amazon expects to earn in advertising from the newly discounted Kindle with Special Offers. I happened to catch MG Siegler’s post on TechCrunch on the same topic.  Siegler takes an approach I heard frequently immediately following the announcement, namely that $25 isn’t a strong enough discount.  Amazon should have been more aggressive and marked the device down to $99 – then we’d be talkin’.

I agree with Siegler that this is part of a broader pricing experiment for Amazon.  Amazon loves to experiment with pricing (among other things) and by so doing they can more accurately estimate demand elasticity (among other things). Thus, the recent price cut could have simply been an info gathering exercise. On the other hand, Amazon has on several previous occasions cut the Kindle price so I imagine they have a good handle on the shape of the demand curve as well as demand for ebooks (additional books sold) as a result of additional devices moving into circulation. As I wrote, Amazon could have arbitrarily picked $25 – it is after-all a very round number.  In this spirit, I don’t agree with Siegler where he suggests Amazon “must have looked over the potential numbers from advertising and determined that $114 was as low as they could go.” They could have gone lower, but opted not to. And I don’t think that decision was heavily influenced by per unit revenue loss rates.  

The Value of Advertising on the Kindle

Amazon recently announced they would sell a new Kindle with “Special Offers”version.  Kindle with “Special Offers” has the same specs as their WiFi-only Kindle but will include advertisements as the screen saver and on the home screen bar.  In exchange, Amazon will only change $114. 

In all likelihood Kindle hardware will one day be free (or close to free) because of cross subsidization (give away the hardware and monetize the content). The Kindle app for other devices is logically already free.  And of course, this go-to-market approach is common for other technology categories like gaming.  Gaming hardware doesn’t drop to zero likely in part because of the retail relationships that must be maintained by the OEM, but it isn’t uncommon to see it sold below cost at different times. With Amazon’s Kindle in other retail channels, this might be the approach Kindle takes.  You also don’t want consumers taking more than they’ll use.  With a registered Kindle account this becomes less of a concern.  I won’t be surprised if the Kindle with “Special Offers” remains exclusively available through Amazon because of the confusion it might cause in other retail chains which might help drive volume back through Amazon.