By April 30, 2012

How Amazon’s Kindle Fire Is Burning E-Ink And The Dedicated Reader Market


Many bibliophiles love their Kindles, Nooks, Sony’s, and other E Ink based devices.

Much has been made of their light weight and long battery life, and the E Ink-based screen is said to have many advocates, all claiming that it’s easier to read and easier on the eyes than a backlit LED screen.

But was E Ink true love… or just a brief fling?

As was pointed out earlier in Print? It’s Dead Jim, Amazon recently announced that digital ebook sales have now exceeded sales of all print titles, both hardcover and paperback combined. John Grisham, author and novelist, stated that “E-books will be half of my sales this year.”

As of this writing, the first Kindle is just five years old, introduced in 2007. The first Kindle app for the iPhone? Four years old. The iPad? Just two years old.

And yet half of all book sales are ebooks? Staggering.

So with ebook sales are on fire, we could be forgiven for making the assumption that dedicated reader sales are blazing as well. And by one metric, they are.Reader And Tablet Sales? Booming

If you count the Fire, that is.

Of course, the lion’s share of the tablet market still belongs to Apple, with the iPad’s marketshare currently running at 68%, along with 80% of the profits. Android tablets, including the Kindle, account for the remaining 32 percent. (Numbers from IDC.)

During April’s quarterly conference call, Tim Cook announced that Apple had sold 12 million “new iPads” in its first quarter on the market.

Add them all up, and Apple’s sold more than 67 million iPads since its original debut in 2010.

And the Fire? Amazon stays frustratingly silent on actual sales data, but analysts estimate that Amazon sold anywhere from 5 to 6 million Fires during its first quarter holiday season. Let’s split the difference and call it 5.5 million.

For comparision’s sake, how many iPads did Apple during the first quarter it was on sale? 3.47 million.

Amazon’s second quarter numbers are equally vague, but according to research by ComScore, the Fire’s market share by the end of March was an astounding 54.4 percent of all tablets that run Google’s Android system software. Or half of 45% of the entire US tablet market.

Recent IDC numbers, however, indicate that sales of all Android tablets, including the Fire, fell sharply after the holiday rush. IDC gives the Fire just 4% of the total worldwide market. The disparity makes sense, however, if you consider that Amazon’s primary strength is here in the US.

Based on ComScore percentages, and reflecting the IDC figures, analysts indicate that Amazon probably sold at least 2 million Fires during its second quarter on the market.

Final score for two quarters on the market? Apple, 7.66 million iPads.

Amazon? Nearly the same, with 7.5 million Kindle Fires sold.

But What About The Other Kindles?

With that many Fire’s sold, you’d think sales of the Fire’s cheaper siblings would be equally strong.

Again, Amazon doesn’t break out sales numbers, but we do have the recent quarterly results from E Ink, manufacturer of the electronic paper displays used in the Kindle and many other ebook readers.

And those results are troubling. E Ink reported in January that its December sales totaled just $55 million USD, down 55 percent from November and also down 57 percent from last year.

In its quarterly earnings statement, given last Friday, E Ink reported its first loss in two years following ten quarters of consecutive profit.

Revenues declined by a steep 63 percent to just $131 million, while its gross margin shrunk to a 0.8 percent from a much higher 28.5 percent in the previous quarter. The steep decline and loss is attributed to excess production capacity, an oversupply of screens stored in warehouses, and “inventory adjustments at clients.”

E Ink chairman Scott Liu spoke at an investors’ conference last week in Taipei, stating,”Our major customer was too optimistic about its sales in the fourth quarter of last year and ordered too much from us. That made the customer order almost nothing from us in the first quarter.”

I’ll give you just one guess as to who E Ink’s “major customer” might be. E Ink also indicated that Barnes & Noble as well as Kobo were sitting on hefty stocks of e-paper displays.

Translation? E Ink is still making screens, but their “clients” aren’t buying them, because their client’s customers aren’t buying them.

They’re buying iPads and Kindle Fires and Nook Colors instead.

A Technology In Trouble?

E Ink’s virtual paper technology has long been touted as “easy to read” and less fatiguing to the eyes. However, the Consumer Electronics Laboratory at the M.I.T. Media Lab has taken exception to this claim, indicating it’s not always true.

“It depends on the viewing circumstances, including the software and typography on the screen,” explained Michael Bove, a Media Lab director. “Right now, E Ink is great in sunlight, but in certain situations, a piece of paper can be a better display than E Ink, and in dim light, an LCD display can be better than all of these technologies.”

One major problem with E Ink is that it has a very low contrast ratio. Although it can offer an excellent reading experience in bright sunlight, the screens can become uncomfortable to use in dark settings because of the lack of contrast and backlighting on the screen.

Slow page refresh speeds are another issue, along with the fact that screen artifacts build up over time. This requires an E Ink screen to frequently reset itself by inverting the entire screen from white to black to white again. “That page-turn flicker gives me a headache,” said one user.

For a while there was some hope on the E Ink horizon, and that was the possibility of color displays. Regrettably, current prototypes still suffer from lethargic refresh rates that make them ill-suited for games and video, and costs are still on the high side.

Then there’s the competition. Dozens of companies are pouring millions of R&D dollars into Retina displays, IPS (in-plane switching) technology, and OLEDs. Newer technologies like the Pixel Qi low power, sunlight readable display are also bringing pressure to bear.

All of these technologies are improving daily, and all of them are stealing clients and customers away from E Ink.

Notwithstanding the screen, E Ink’s biggest draw was price, lower than that of similarly sized LCDs. The orginal Kindle entered the market five years ago at an aggressive price point of $399. Today, current versions sell for as little as $79.

But low prices aren’t everything, as sales of the iPad have shown. People will spend more money if they perceive that there’s more value in doing so.

So What Are People Doing With Their Tablets?

They’re reading, for one thing. Simba Information just published a survey which established that 60% of their respondents are reading ebooks on their iPad. That’s over 40 million iPads being used as ebook readers.

A British survey conducted by Imano Digital Agency last June backs this up, indicating that 63 percent of UK iPad owners are using them to read books.

The same survey also indicated that 98 percent of tablet owners use it to browse the internet. 94 percent of them use it for email. 79 percent of iPad owners also used their devices for gaming while a close 78 percent used it for social networking.

A recent AdMob survey of US tablet owners gave similar numbers. Popular activities on tablets include gaming (84%), searching for info (78%) and emailing (74%).

People also use their iPads to read web sites and magazine articles, news feeds, and articles clipped and sent to Evernote and Instapaper and PDF Reader.

Then there’s video. According to a recent report by Nielsen, 85% of US tablet owners use their tablets while watching TV, while 30% of total tablet time is spent while watching TV and video on the tablet itself.

In short, people are in fact using their iPads and Fires and other general-purpose tablets for reading. And for much, much more.

That’s a severe blow to a dedicated device based on a slow, monochromatic screen technology.

Jack Of All Trades

At this point, many E Ink champions will be quick to point out that there’s still room for a dedicated device, one devoted to doing a single job, and doing it well.

Perhaps. But a dedicated device is just that. A device. Yet another device that has to be carried, packed, charged, synced, managed, and maintained. And it needs another case, and another charger, and another cable, and so on.

Dedicated devices also lead to proliferation. You could carry around a separate device to browse the web… and a Kindle… and a movie/multimedia device… and a GameBoy…

Or you could carry something like an iPad or a Kindle Fire, which does all of those things, and more.

Which brings us to the old saying, “Jack of all trades, Master of none.”

But contrary to popular belief, there are times when being a “Jack of all trades” is actually an advantage. Why? Becauase people will pay more for something that does more.

As such, a multi-purpose device can afford to be a little more expensive, include multi-core processors and graphics, contain more RAM and Flash storage, have a nicer screen, and, overall, simply have a higher build quality.

And because of that, it can in many cases be better than a dedicated device whose audience can’t justify — or afford — a higher price point.

Is Amazon Killing Its Own Product?

Ironically, the most intense pressure on E Ink device sales comes not from Apple, but from Amazon itself.

Picture the average Kindle shopper that visits Amazon’s web site. There’s the bottom end with ads, the mid-range black and white version… and then there’s the Fire with full color for just a few dollars more.

So, if you’re in the market anyway, why not get the Fire and get a device that does more? I mean, it’s a Kindle too, right?

Amazon is betting on this kind of behavior, and they’re betting big, to the point of aggressively subsidizing the Fire’s costs. iSuppli component tear-downs of the Fire support this, in that the $199 Fire’s bill of materials (BOM) is at least $209, if not more.

And given E Ink’s consecutive declines, that bet appears to be paying off. People are choosing the Fire.

Of course, that cuts into traditional Kindle sales as well. But that’s fine from Amazon’s standpoint, since a customer who buys  books and apps and games and who rents movies and videos will eventually bring more to the bottom line. A lot more.

If you buy a multi-function device, you’re going to use a multi-function device.

And a Kindle customer with an entire library of ebooks and apps and movies is also likely to stay a Kindle customer. After all, a Kindle ebook owner can always jump to another platform and keep on reading. But apps and games and videos? Nope.

They’re tied to the Fire.

Current declines in Kindle and Kindle Touch sales hurt, that’s true. But, unlike many companies, Amazon is one of the few that understand it’s better to cannibalize your own sales than to let someone else do it for you.

Also keep in mind that Fire sales are cannibaling sales of other devices as well. B&N and Kobo are sitting on inventory and suffering too, and they don’t have Amazon’s reserves and resources to back them up.

That’s the Amazon story in a nutshell. They started with books and then moved into other product lines. They burned VC money for years building up marketshare and undercutting the competition.

Until, suddenly, there was no competition, and they owned the marketplace.

E Ink Is “Better”

The final argument is that “real” ebook lovers prefer E Ink. It’s just “better” for reading books.

Again, perhaps. But as we saw above, being better is a pretty subjective statement.

E Ink might be better for some because it can be read on a sandy beach in direct sunlight. But an LCD screen might be “better” for me, as I spend far more time reading indoors than I do out on the beach. Horses for courses.

And while current generation LCD screens might not be “better” than E Ink for reading books… they might just be good enough.

Look at how cameras in phones have eroded sales of stand-alone P&S cameras. For years, cell phone cameras were junk… until suddenly they weren’t. Look at how HD video recording built into the iPhone 4S and other smartphones have dug into camcorder sales. They started by killing off the Flip and others like it, then kept moving up the food chain.

Yes, you could carry a dedicated ebook reader in addition to everything else, just in case you decide to hit the beach… but most of us won’t bother.

And, as shown above, at least 60% of current iPad owners agree with that assessment.

The numbers don’t lie. The market is expanding. iPad sales are booming. Kindle Fire sales are booming. Even stock Android tablet sales are rising.

Sales of ebooks are eclipsing those of hardbacks and paperbacks.

But demand for the core technology on which Amazon’s and B&N’s and Sony’s and Kobo’s E Ink readers are based?


And that’s not good. Not good at all.


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