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SAN FRANCISCO
— The threat of growing competition in the e-reader
market does not seem to have cooled demand for
Amazon.com Inc.'s
Kindle, but the online retailer will likely face its
toughest test in the coming holiday season.
Amazon
surprised many on Thursday when it disclosed that the
Kindle is now the most popular product on its heavily
trafficked Web site.
This came
as the company reported strong results for the third
quarter late Thursday. Earnings soared 69 percent,
beating expectations. The results and accompanying
forecast helped propel the company's stock more than 26
percent to close Friday at a new record high of
$118.23
.
Part of
the sales growth appears to have been powered by the
Kindle. The company did not disclose specific sales
figures, keeping to a long-standing policy. But in its
earnings statement, CEO
Jeff Bezos
said the Kindle "has become the No. 1 bestselling
item by both unit sales and dollars — not just in our
electronics store but across all product categories on
Amazon.com
."
He also
disclosed that the company lowered the price on its
recently announced international edition to
$259
— effectively phasing out the original version of the
device that only worked on wireless networks in the U.S.
Amazon
has slashed the price on the Kindle by
$100
just over the last three months. This comes as the
device faces new competition in the coming months, both
from startups as well as big rivals like bookseller
Barnes & Noble
and electronics giant
Sony Corp.
"We
believe the competition is expected to heat up further
over coming months, from existing competitors such as
Sony
and iRex and with product launches expected from Plastic
Logic and
Samsung
," said Youssef Squali of
Jefferies & Co.
in a note to clients Friday.
Despite
its statement Thursday, analysts still have no real idea
how many Kindles the company has managed to sell, though
some are willing to guess.
The
device was first launched in late 2007. Many analysts
believe more than 1 million units have already been
sold.
Mark Mahaney
of
Citigroup
thinks the company will sell 1.5 million units of the
device this year. He increased that estimate from 1
million earlier this month, with the company cutting the
price of its original Kindle to
$259
.
Justin Post
of
Bank of America
believes Kindle sales will total 1 million units this
year. But he believes unit sales of the device have less
of an impact on total company revenues than do sales of
electronic versions of books that are used with the
product.
"Because
Kindle has such a small impact on to Amazon's business,
the company is able to keep product costs down without
hurting margins noticeably, helping to fend off
offerings from smaller competitors," Post wrote in
an
Oct. 7
report.
Following
Amazon's disclosure on Thursday,
Sandeep Aggarwal
of
Collins Stewart
believes the company has not suffered a drop in sales
from news of new devices coming to the market.
"In
our view, Kindle has likely hit the tipping point during
the quarter," Aggarwal wrote in a report Friday.
"Though Q3-09 was characterized by news flow full
of mounting competition for Kindle, given that the
eBooks Reader market is at an early stage of development
and Kindle has a first mover advantage, the competition
had no impact on Kindle shipments."
The
Kindle's toughest competition may come from Amazon's
long-time rival
Barnes & Noble Inc.
Earlier
this week,
Barnes & Noble
lifted the wraps on its own e-reader device called the
Nook. Like the Kindle, the Nook uses an
E-Ink
screen and can download books over wireless networks.
But the device also uses a second touch-screen for
navigation, and sports a "book-sharing"
feature that allows users to share books with friends
for a period of 14 days.
Sony Corp.
, which actually had an e-reader on the market before
the Kindle, recently upgraded its line, including a new
device that sells for
$199
.
Other
companies like
Silicon Valley
start-up Plastic Logic and Irex, a European company that
is a spinoff of
Phillips Electronics
, are planning to debut e-reader devices in the coming
weeks. The Irex device is a full touch-screen that will
sell at
Best Buy
stores for a suggested retail price of
$399
.
Also,
Apple Inc.
is widely expected to launch a tablet device sometime
next year. It would likely be a full computing device,
which analysts believe might test how popular single-use
devices such as e-readers might be.
Mahaney
of
Citigroup
believes Amazon will be able to hang on to its leading
position, despite the new competitive threats.
"We've
studied The Nook from
Barnes & Noble
, but don't see any real differentiation," he wrote
in a report Friday. "We're eagerly awaiting Apple's
Tablet and the answer to the question of whether there
really is a very large market for stand-alone eReaders.
We think there is ... we see people carrying around
stand-alone Readers all the time ... they're called
books ... "
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