Amazon: What's Behind the Kindle Shortage?

On Christmas Eve, the NY Times published a takeout on Amazon’s (AMZN) efforts this Christmas season to sell the Kindle. As with the 2007 season, the Kindle sold out, and won’t be available until February. The NYT notes that Sony (SNE) is exploiting the shortage to gain its own sales, while other readers are either on the way or already here. In the latter camp are several iPhone book reading apps, such as Stanza and Classics.

Reading the NYT story on Christmas Day — in dead tree form syndicated to my in-laws’ newspaper — one paragraph jumped out at me:

It is difficult to quantify the success of the Kindle, since Amazon will not disclose how many it has sold and analysts’ estimates vary widely. Peter Hildick-Smith, president of the Codex Group, a book market research company, said he believed Amazon had sold as many as 260,000 units through the beginning of October, before Ms. Winfrey’s endorsement. Others say the number could be as high as a million.Sorry, but there’s no excuse for such secrecy. In other consumer industries — such as MP3 players or PCs or cellphones (let alone records or automobiles) — reasonably accurate estimates of unit sales are taken for granted, and are the basis for strategic planning by the whole ecosystem. Amazon has been able to prevent any third party estimates of reader sales because it controls its own distribution, and has not chosen to share accurate information with shareholders or analysts.

The Kindle looks to be a big success. Why is Amazon hiding the truth? I can think of three reasons:

1. It doesn’t want its competitors to know. Somehow I suspect that at least Sony has the resources to find out what’s going on.
2. It’s saving it for some big splashy announcement. In other words, Jeff Bezos wants to be the next Steve Jobs.
3. The numbers are embarrassingly small. In other words, the Kindle has sold out because it’s doing a bad job of managing its production supply chain, not because it’s a smash hit.

I will certainly admit that not every schlocky Chinese factory can assemble a device as small and precise as a Kindle, but it seems like after 18 months it should have been able to find a way to make enough units to meet anticipated demand. Perhaps Amazon didn’t want to produce a large number of units because it’s flushing inventories for the next model, but the Christmas season seems too important to miss — particularly if you’re trying to see consumers with a platform to buy your content.

From what wecan measure, Amazon has clearly been greatly successful at getting content for its book at good terms, leveraging its market power as the country’s second largest seller of books.

As my buddy Doug Klein made clear in several presentations to my SJSU students, cajole (bludgeoning?) the publishers and the existing distribution channel (and its inertia) are key to the success of any company that seeks to shift the book industry from dead trees to electronic distribution. Doug should know, since he was president/COO of the company that made the Rocket eBook, which fought the publishers a decade ago.

Content deals, as with publishing (or music downloads) will tend to be nation-specific, so being the US leader is not assured (or even likely) to lead to Total World Domination of book publishing. This is where open standards will be nice, so that a reader purchased in the US can read content downloaded in the UK or Australia or even Japan.

Will Amazon get the same pressure to open up its proprietary-formatted content as Apple (AAPL) has? Perhaps if it stays out of France, it can avoid such difficulties.

Comments

[farkus:]

The headline grabbed my attention---"What's behind the Kindle Shortage" The author could have shortened the article up to the following:

"Here's a few obvious possibilities, but I really have no idea".

2008 Dec 26 06:30 PM

[X86BSD:]

Yeaaaahhhhh I throw my weight behind reason #3. The product sucks and they sold out because they only made 50 of them. Has anyone even *seen* one of these in the wild? Do any of your friends own one?
This is such a novelty device. If you had one you would use once, maybe twice and then it would end up in the trunk of your car or in a box in the attic.

2008 Dec 27 01:26 AM

[joes:]

Don't won one but have seen enough to feel that the Kindle has a chance to develop relationships and channel for profitable areas of publishing such as text book market ($15B annual US).

2008 Dec 28 03:46 PM

[Char:]

Amazon and Kindle and their closed customer offering is likely to take off, but eBooks won't go mainstream until their are at least 10 eBook readers out there, being made by mainstream manufacturers of electronic devices like Dell, HP, IBM (remember when they got it together and released "the PC").

Amazon is creating an Encyclopedia Britannica model, closed, where they control the content, and what the customer gets access to. Authors won't like that, publisher won't like that, and customers will eventually remember that Amazon did this once before and left it's earlier customer set hanging with closed content that could only be read on their readers, which they pulled.

Jim

Jan 18 07:26 PM