Analysts Say Kindle Now Creates Nearly 10% of Amazon’s Revenue

It seems that Amazon’s Kindle is poised to hit something of a milestone in terms of its influence on the company as a whole.  A recently released Citi analysis has come to the conclusion that the Kindle now accounts for just short of 10% of Amazon’s total revenue, if you take into account all hardware and media.  While this would be a big deal in any case, it apparently merits recognition by Citi because of a rule they have which states that any segment of a particular company must achieve 10% of its total business before it can impact the growth rate of the company.  Surprisingly enough, this is not the only bit of interesting information on the report.

We all know by now that Amazon has been selling more eBooks than print books recently.  It seems to be the start of a trend.  When commenting on this development, the report also states that “We believe that industry-wide, eBooks will surpass Print books in terms of sales within 2-3 years.”  Apparently this has held up in the UK as well, where the Kindle has experienced even more rapid adoption than in the US, with Kindle books already outselling hardcovers at a rate of 2-1. They also make note of the fact that Kindle book sales have managed to triple in the past year and show no sign of tapering off any time soon.  This year over 310 million Kindle books will have been sold and next year we are looking at perhaps as many as 751.5 million. That’s a combined total of $3.8 billion from Kindles this year alone and as much as $6.1 billion next year.

Aside from numbers, what does this mean for the Kindle line?  Well, estimates have been favorably improved recently.  Amazon is now projected to sell 17.5 million Kindles this year and perhaps 26 million in 2012.  In addition, the success of the Kindle w/ Special Offers, which has managed to become Amazon’s best selling eReader so far in the short time it has been available, lends merit to the idea that we may see a Kindle priced under $100 by the end of this year. According to many analysts, this is the tipping point whereat the Kindle can feasibly become an impulse buy for customers rather than an investment, giving it that much more influence over the eReading and Publishing marketplaces.

Interestingly, none of the Citi analysis’s predictions for the remainder of 2011 or 2012 make any note of the potential merits of the upcoming Kindle Tablet.  While it has not been officially confirmed, which may well be the reason for the exclusion, it is hard to do research on Amazon at the moment without finding some information pointing out what’s coming.  Given Citi’s use of actual numbers in their sales figures and projections, something that they certainly didn’t get from the notoriously tight-lipped Amazon, it is clear that they go more than a bit beyond press releases and PR interviews.  It could have been interesting to see what their take was.


$750 Million in Kindle Sales by 2010

Mark Mahaney – an Internet Analyst at Citigroup Investment Research – is predicting that revenue generated by Amazon from the sale of Kindle’s will be between $400m – $750m by 2010. That would account for 1% – 3% of Amazon’s total revenue, about half the projected revenue would be from the sale of Kindle devices and the other half from book sales after purchase. However, revenue is not profit and we don’t know what the profit margins are on the Kindle device.

Read the full statement by Mark Mahaney/Citigroup Investment Research below:

How Is Kindle Doing So Far In The Marketplace?

Our ability to answer this question is very limited. Amazon is the sole retailer of the Kindle and it has disclosed no information about its sales other than to say that it sold out in the first 5 1⁄2 hours. But we have pieced together four different clues to gain a sense of Kindle’s traction.

First, we note that Kindle has consistently been ranked among Amazon’s Bestsellers in its Electronics category. Ahead of the Apple iPod Nano, the Garmin GPS Navigator, and the Canon Powershot Digital Camera.

Second, we note that the Kindle has received a very large number of customer reviews. Per the exhibit below, we note that Kindle has received more customer reviews than any of the other Top 10 Bestselling items in Amazon’s Electronics category – 2,537 reviews as of May 12th – vs. 663 for the Apple iPod Nano 4GB Silver (3G), the #2 Bestseller. This is in part an unfair comparison. Kindle is a new product sold only on, while there are numerous versions of the iPod, and they are sold by numerous retailers. But still, the volume of reviews does indicate material traction for the Kindle.

Third, we see that the quality/tone of the customer reviews the Kindle is receiving is relatively positive. Below we compare the Star Rating Diffusion – 5 Stars vs. 4 Stars vs. 3 Stars etc… – for each of the Top 10 Bestselling Electronics Items on Amazon. What we see is that the Kindle actually receives fewer high scores than the other Bestsellers – 69% of its reviews are 4 or 5 Stars vs. an average of 80% for the other items. And it receives more low scores than the other Bestsellers – 22% of its reviews are 1 or 2 Stars vs. an average of 13% for the other Items. But for a Version 1 of a product “competing” against a several times iterated leading consumer electronics item like the iPod, a 69% Star 4 or 5 rating is relatively positive.

And fourth, we note that the most reviewed Customer Review of Kindle (“Why and how the Kindle changes everything” by Steve “eBook Lover” Gibson) has been reviewed by at least 27,000 people. Specifically, as of May 13th, 26,931 have read Steve Gibson’s review and actually commented on it by pressing the Yes or No button when asked if the review was helpful. And logically, there would be more people who read the review and didn’t bother to vote, although the voting step is hyper-easy. We believe that this helps provide something of a proxy for how many Kindles have likely been sold. We’d peg the number as somewhere between 10,000 and 30,000 Kindles sold to date.

The numbers look about right to us, what do you guys think?

For Amazon to hit the $750 million in sales figure a few assumption have to be made. The figures are based on the assumption that sales will grow from 189,000 units by the end of 2008 then to 2.2 million units by 2010 and that Amazon will drop the price to about $300.

Source: Silicon Ally Insider