Amazon.com is unlikely to see the momentum for its popular Kindle e-reader checked in the short term by the release of the Apple iPad. However, recent moves on Amazon.com’s part suggest that the company sees the iPad and other tablet PCs as something of a competitive threat, while some analysts suggest that Apple’s device could have a long-term negative impact on Kindle sales.
For the moment, the Kindle continues to be a strong seller, with Amazon.com CEO Jeff Bezos asserting that “millions” of the devices have been sold. Analysts have estimated that exact number to be anywhere between 2.25 million and 3 million, although the company itself has traditionally declined to break out exact numbers.
“We now estimate that Amazon has shipped a total of 2.25 [million] Kindle units and generated total hardware [revenue] of $742 [million] ([including] $500 [million] in [deferred revenue]) in the past 27 months versus our prior estimates of 1.1 [million] and $370 [million] respectively,” Sandeep Aggarwal, an analyst with Collins Stewart, wrote in a Jan. 29 research note.
TechCrunch’s Michael Arrington, meanwhile, quoted “sources close to Amazon” as presenting that figure of 3 million units.
Despite having been dismissed as more of a niche device by some analysts earlier in the year, e-readers managed to become one of the hot items of the 2009 holiday season, with both Amazon.com and Barnes & Noble claiming strong sales for their respective devices. During the Consumer Electronics Show in Las Vegas, a number of smaller companies rolled out e-readers evidently designed to claim at least a tiny percentage of that burgeoning market.
However, many of the tablet PCs also making their debut at CES included some sort of e-reader functionality, in addition to offering other features such as color screens and a full operating system.
Then, on Jan. 27, Apple formally introduced its own tablet PC during a high-profile event in San Francisco. Dubbed the iPad, the tablet with the 9.7-inch LED backlit multitouch screen will run some 140,000 applications from the App Store upon launch, according to Apple, and run on a 1GHz Apple A4 proprietary processor.
“Apple finally unveiled its much-anticipated multimedia tablet iPad, along with an e-reader app called iBooks and an online e-books store,” Youssef Squali, an analyst with Jefferies & Co., wrote in a Jan. 28 research note. “We believe that the iPad will slow Kindle’s growth momentum but we do not see its impact on Amazon’s  revenues as material. There is likely a market for a dedicated e-reader but arguably at lower prices.”
In essence, Squali asserted, the iPad could negatively affect Amazon.com’s Kindle-related revenue to the tune of roughly 1 percent in 2010, and potentially more in 2011. “The scenario assumes further [international] expansion of Kindle and a price reduction from $199 to $256, but assumes no incremental Amazon e-book sales on iPad.”
Currently, Amazon.com markets a Kindle App for iPhone and iPod Touch that allows e-books to be downloaded from the online retailer’s e-bookstore. Squali suggested it was likely that the iPad will support a Kindle App, potentially expanding Amazon.com’s market via the device and “generating revenues that could offset lost [revenue] from [Kindle] device sales.” At the same time, though, the presence of Apple’s upcoming iBooks storefront could eat into Amazon.com’s e-book revenue.
Amazon.com Gears for Battle
The Kindle devices offer a free 3G connection, and Squali said he believes the line will see further price reductions to differentiate it from Apple’s offering. “An equivalent functionality on iPad requires users to pay an additional $120 for a 3G modem and $30 per month subscription for unlimited 3G access,” he wrote, “a price point that may not be compelling to users who want a dedicated, simple reading device.”
In the weeks before Apple unveiled the iPad, Amazon.com seemed to be taking steps to make the Kindle line more appealing to a broader audience of readers and developers. On Jan. 15, the retailer announced that it would allow authors and publishers to upload and sell books in English, German and French in the Kindle Store via its self-service Kindle Digital Text Platform, an expansion of a program previously limited to authors and publishers in the United States.
Days previously, it announced that the widescreen Kindle DX would allow readers to download e-books and other content in over 100 countries.
But the surest sign that Amazon.com was positioning itself for a broader competitive battle came on Jan. 21, when the company revealed an SDK (software development kit) for the Kindle that would allow developers to build active content that makes use of the device’s 3G wireless delivery, high-resolution electronic paper display and long battery life.
The Kindle Development Kit included sample code, documentation and a Kindle Simulator, which helps developers build and test content by simulating a 6-inch Kindle or 9.7-inch Kindle DX on Mac, PC and Linux desktops. At the time of the announcement, EA Mobile announced that it would help bring games to the device.
Apple has also been encouraging developers to begin constructing iPad applications with the new iPhone SDK 3.2 beta. That SDK includes an iPad Programming Guide, iPad Human Interface Guidelines and iPad Sample Code. In doing so, Apple seems to desire a repeat of what happened with the iPhone, where throwing the App Store open to third-party developers led to an exponential proliferation in the number of available programs.
As with the iPhone, it may take some time for the iPad’s fate on the marketplace to fully play out. Whether or not Apple’s device-not to mention other tablet PCs-eventually begins to affect the e-reader market, and Amazon.com’s share of it, in a substantial way, it certainly seems that Amazon.com is anticipating that eventuality.