Falling interest in Kindle and Nook: the decline of ereaders?

I'm a big fan of Google Trends. It's partial, and you need to think carefully about what you're actually looking at, but used properly it can be very revealing of market trends.

So, caveats aside, this chart shows US search volume for Kindle, Kindle Fire and Nook. Three things stand out: 

  • A large and unsurprising spike at each Christmas
  • A really substantial decline for 2012 versus 2011 - close to 50%
  • The Kindle Fire, supposedly the future-proof successor to the Kindle, appears to be falling, not growing

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Amazon, of course, tells us nothing tangible about how the Kindle is doing, but Nook's numbers (as reported by Barnes & Noble) are looking terrible, which is consistent with this.

It seems to me that several things may be going on here:

  • General-purpose tablets (mainly the iPad) are more proving more compelling to consumers than special purpose tablets like the Nook and even the (rather more capable) Kindle Fire
  • Cheap general purpose tablets (which are very hard to capture in Google Trends, as an aside) have removed or reduced the price advantage the Nook and Fire had last year
  • These devices have quite long lives - especially ereaders (i.e. the Kindle). Maybe most of the addressable market bought one in 2010 and 2011 and those people didn't come back to the market in 2012

There's a broader story here, of course, in the way that the growth rate of ebooks seems to be slowing as they reach a third or so of the market.

The UK data shows a trend that's slightly different: Nook is MUCH weaker (reflecting the absence of real distribution or brand) and Kindle Christmas interest held up better in 2012, probably reflecting the later UK date - ebooks seems to be about 1 Christmas behind the USA. However, the drop-off seems to be sharper in the beginning of 2013 than in the beginning of 2012, just as in the USA.  

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The same point is even more clear if we look at search volume for 'ebooks'. The deceleration is clear.

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Amazon hints at Fire numbers - 1.9m a quarter?

For the first time, Amazon has given a vaguely tangible number for Kindle sales: the Fire has “22%” of the US tablet market. 

This could mean two things: Q2 sales, or share of the total base. 

First, lets’s assume this was share of Q2 sales 

  • Apple and Samsung both disclosed their Q2 US tablet unit sales as part of the patent lawsuit: 5.7m and 37k (sic) respectively. This doesn’t include sales of Samsung tablets not subject to the lawsuit (mainly the Galaxy Note), so add 150k to this. 
  • Assume Samsung had a third of the Android tablet market
  • Barnes & Noble does not disclose Nook unit sales. Nook revenue, including ebooks and devices was $192m, so sales must be well under 1m (since the unit price is $200 and 1m unit sales would be $200m): I assume 500k. 

That adds up to around 6.7m units. If Amazon had 22% market share, that means a total market of 8.6m units and Amazon units of 1.9m. 

Frankly, this is pretty imprecise - there are horribly big assumptions on every line except iPad sales, and it could be anything from 2.25m to 1.5m quite easily. Further, we don’t know what assumptions Amazon itself used to estimate the rest of the market in order to calculate its 22%. A report came out earlier this year estimating 22% share, a suspicious coincidence, but it would be bizarre for Amazon to quote that one rather than any of the dozens of other estimate and give no qualification. 

Applying some more guesses to the other quarters since launch, I get to maybe 6-6.5m units sold - versus 19.935m iPads sold in the USA in the 12m to June 2012. But only Amazon really knows - and probably only a few dozen people even inside Amazon

Now, what if Amazon is actually talking about share of the base? 

Apple sold 26m iPads in the USA just since the beginning of 2011. The vast majority will still be active. If there were no other tablets in the UA except for the iPad and the Kindle, a 22% share would give the Fire 7.3m users. Again, adding in the rest of the market with some rough assumptions pushes the Fire figure to somewhere around 8.5-9m. This, obviously, would require a rather high quarterly sales rate, since the Fire has not been on sale for as long as the other products. 

Kindle Fire petering out?

Transient

I love Google Trends charts. I’d never mistake them for actual DATA, but they can be quite revealing sometimes. This chart shows global search volume for the term ‘Kindle Fire’. There’s the obvious spike at launch, another over Christmas and then, well, a slow petering out. 

One could argue this is just a reflection of buying patterns, and doesn’t reflect on the Fire itself. But look at the iPad: 

No decline there at all…

Facebook’s acquisition of Push Pop Press got a lot of attention last week. It overlapped three areas of interest - Ebooks, Facebook and the Mac/UI world, and one of the founders, Mike Matas, used to work for Apple and designed some of the apps on the iPhone. 

The obvious (and entirely sensible) explanation was put well by John Gruber, who argued that this was a talent acquisition: Facebook doesn’t care about ebooks but does want to have the UI and engineering talent behind Push Pop as part of its team (maybe to make apps, maybe not). 

However, this was met with some lamentation in the tech world (for example,from the normally perspicacious Om Malik), who thought Push Pop had ‘done a Patzer’ - sold out a promising idea before it reached fulfilment.

I disagree entirely. This thing that immediately struck me about the demo above was “THIS WON’T SCALE”. 

There are two structural problems with interactive books. 

The first is that around two-thirds of value of the publishing market today is for text-only genres - fiction, science, poetry, biography, history etc. Some of these will benefit to some extent from interactivity. But when cheap colour printing came in, these did not all suddenly shift to being printed in colour, and most biographies, literary criticism and novels will not shift to being interactive -there simply isn’t money to do so. A typical serious biography today will sell at most 20k copies: there IS NO MONEY to add video to that.  

This means that Push Pop was only targeting a third of the publishing market at best - and only the proportion of that that is covered by tablet owners, and only titles within that with the volume to support the extra work.  So, not the $20bn US publishing industry, but at most a third of that and probably rather less. 

The second problem is that the value-added here is in the manual labour of creating all the whizzy interactivity. That doesn’t scale. Sure, you can create and sell a platform for making this, but the cost, and hence the revenue potential, is in graphic designers. This space has very low operating leverage. 

In other words, Push Pop was looking at selling a platform into an interactive ebook market with maybe $3-4bn of future gross revenue potential, very low margins and very high labour intensity. That suggests, intuitively, that the total revenue potential for interactive ebook solutions might be a couple of hundred million dollars, and maybe rather less. In turn, Push Pop might have been looking at revenue in the mid to low single digit millions and a valuation about the same. Better to take Facebook’s cash?