E-Reader Wars Heating Up: Apple May Have Edge with Younger Generations

The release of best-selling Da Vinci Code author Dan Brown’s new novel, The Lost Symbol, seemed to herald the emergence of the electronic reading device (e-reader) as the next mass market, must-have gizmo, as the media trumpeted the news that Amazon.com Inc.’s (AMZN) first-day digital sales of the novel outsold paper copies. However, publishing pundits quickly refuted the assertion, calling into question how Amazon was going to account for pre-orders, which had made the hardcover version one of Amazon’s top-selling books for 156 days. While the actual number of e-book sales of The Lost Symbol is still undergoing vigorous debate–the Associated Press reported that it only represents 5 percent of sales–it seems clear that e-readers and e-books are coming into vogue.

With all that said, the question arises as to which company is ultimately going to become the e-reader sales leader? Among those currently in contention are Amazon, with its “Kindle;” Sony (SNE), with at least five versions of its “Reader;” Samsung (SSNLF.PK), with its “Papyrus;” Fujitsu (FJTSY.PK), with its “FLEPia;” Jinke Electronics, with its “HanLin eBook;” Interead, with its “Cool-er;” and IRex Technologies (a spinoff from Royal Philips Electronics (PHG)), with its “Digital Reader 1000” and “iLiad.”

Waiting in the wings, and likely to enter the fray with a big bang is Apple Inc. (APPL), with its highly anticipated, yet features-unknown, “iTablet,” which is expected to be released early in 2010. Microsoft (MSFT) is also starting to create buzz with its “Courier,” which is currently in “late prototype stage of development.” Others that may join the fray include Google (GOOG), Nokia (NOK), Hewlett Packard Co. (HPQ), Palm Inc. (PALM), LG Electronics (LGERF.PK), Panasonic (PC), and probably just about any other company that already produces handheld electronic communications and/or entertainment devices.

Despite the company’s refusal to release sales numbers, Amazon’s Kindle appears to be the sales leader in the U.S.; iRex reportedly holds the lead in Europe; and Sony is probably leading in the rest of the world absent China, which is under the dominance of Jinke. Amazon is lagging in its efforts to expand into Europe due to problems reaching agreements with suitable Wi-Fi and/or cellular operators. Sony is pushing hard in the U.S. market, promoting its readers through a partnership with Google that allows Sony Readers to download 500,000 titles free. IRex, meanwhile, recently announced plans to enter the U.S. market, having reached agreements with Verizon Communications Inc. (VZ) for wireless downloading and with Best Buy Company Inc. (BBY) for device sales.

According to analysts and market researchers, about 1 million e-readers were sold in the U.S. in 2008. Predictions for 2009 sales are vary widely, ranging from 2 million to 5.5 million devices, with some on the lower end of the scale asserting that the e-reader will not become a mass market device unless the price drops down to about $100. E-readers currently sell for between $250 to more than $1,000, depending on the brand, model and country of sale.

Emergence of the ultimate market leader will be dependent on numerous factors, such as price, features, style, type of download access (wireless versus Wi-Fi), and the extent of access to digital content (Amazon is currently claiming about 250,000 books, while Sony claims about 1 million, with half of these offered free). Demographics will also play a role, much as it did with Apple’s IPod, sales of which were primarily driven by Generations X and Y.

While we are not aware of any marketing studies that have determined the composition of the average e-reader customer, Kindle Culture last summer performed an informal demographic analysis of 1,387 Kindle customers by examining 70 pages of Amazon’s Kindle chat forum thread on the “Average Kindle Owner’s Age.” The results, while not in compliance with survey methodology standards and thus not statistically significant, were surprising in that they suggested that the Kindle may be the first modern technology device to receive early adoption by an older age bracket rather than by those 35 and under.


Source: Kindle Culture

In fact, the largest grouping of Kindle owners by decade were those in their 50s at 21.2 percent, followed by those in their 40s, 19.1 percent, and then by those in their 60s, with 18.3 percent. Only 24.3 percent of the customers were ages 34 and under. This suggests that Kindle may be making big strides with Baby Boomers, what of the younger generations?

We believe that Apple will be in an excellent position to capture these younger customers due to its overwhelming success in capturing this market with their IPod and other products. Not only is Apple a Generation Y (and to some extent Gen. X) brand of choice, but many of these younger potential e-readers will be disdainful of Amazon’s proprietary, or “closed,” format.

Of course, Apple’s success with the iTablet will ultimately rely on its price and what sets it apart from the rest of the field. Apple is doing an excellent job keeping details on the product’s features secret, but all indications are that, unlike other e-readers, it will be a multi-purpose machine. And this will put it into a more direct and separate competition with Microsoft’s Courier, which is also projected to be a multi-purpose e-reader. “Are you a Mac or PC” will likely determine which customer goes for which of these two devices.

Another factor that could generate a sales leader, or make or break the other companies‘ devices is the U.S. textbook market. Whichever company, or companies, can get an edge into this market is looking at more than 60 million potential customers.

There is, of course, the possibility that the e-reader market gets split, with Apple getting the bulk of the younger generations, and the older generations being split between Amazon, Sony, Microsoft and the others. Whatever the case, the e-reader war is on, and Apple CEO Steve Jobs recently took a shot at Amazon’s Kindle: "I’m sure there will always be dedicated devices, and they may have a few advantages in doing just one thing," Jobs said during a Sept. 9 release of Apple’s updated iPod. "But I think the general-purpose devices will win the day because I think people just probably aren’t willing to pay for a dedicated device. You notice Amazon never says how much they sell; usually if they sell a lot of something, you want to tell everybody."

Disclosure: No Positions, but AAPL is Featured in Our Model Portfolio.

Comments

[xcer:]

It is because young people don't read. Also with e-reader the older generations can read easier with out reading glasses. But more affordable models is needed for schools, especially for elementary students. Sometimes these children are carrying up to 30% of their weight with all these text books. Schools and publishers are against it because it will hurt their profits. Every year students must buy new books even though only a few words were changed so that they cannot buy used. If all the students in the world can use a e-reader then the cost of these devices will drop quickly and education will also be much cheaper.

Sep 25 09:07 AM

[Roger Knights:]

"You notice Amazon never says how much they sell; usually if they sell a lot of something, you want to tell everybody."

That's after the competitors are already in the market. The pioneer doesn't want to say, in effect, "Come on in, the water's fine."

Sep 25 10:17 AM

[mollytjm:]

huh? young people don't read?!! that's not true. i'm a senior but i'm in bookstores a lot and there are as many kids/teens in there as older people and they are reading...check out the SciFi section. That's where they are. They also listen to books on cd's in their cars anytime they take trips and also while working out at the gym or walking/riding for exercise. they just read differently.

i do a lot of special exhibits for a zoo and the kids still pour over the books. But they are all getting iTouchs, etc a lot younger, so they are often reading almost constantly, between texting, emails, web surfing news sites and researching school topics.
Eventually a tablet will replace those bookbags for many books and learning cursive writing will be a thing of the past...but the younger generation is info hungry and wants to be in the loop constanty. Humans have always loved a good story...whether oral or written.
This all bodes well for Apple and probably Google stocks.

Sep 25 11:28 AM

[pasca:]

Could not agree more with XCER. These devices are changing publishing for good. The textbook market has already tried to create an e-book cooperative on college campuses via the Internet.
e-Books are going o take over in 3 to 5 years.
Just like the iPhone spawned an entirely new generation of phones the iTablet will do the same thing. I said this when the iPhone first came out and got laughed off of the blogs. today three years later every phone is a touch screen. I wouldn't be investing in mice or keyboards anytime soon.

Sep 25 04:29 PM

[Constable Odo:]

All those textbooks require a lot of trees to be cut down to make paper. Isn't that one of the main reasons eReaders should be used? We are looking for greener alternatives. Apple will most likely win the race because it has the best content delivery platform in place which is iTunes. Once Apple's server farm is completed, there will be no stopping them on storing everything one could possibly imagine in the form of electronic information. They'll just have to make some deals with publishers and such and then it's "stop the presses".

I also think that in 3 to 5 years many more schools will be well into giving mobile electronic devices to students. If anyone can push a tablet, Apple can. With creative programming of apps, students would even be able to carry out experiments on their Apple tablets.

Sep 25 11:22 PM

[GSlusher:]

From the article: "Despite the company’s refusal to release sales numbers, Amazon’s Kindle appears to be the sales leader in the U.S."

That's as blatant a non-sequitur as I've read recently. "We have absolutely NO data, but we'll make a wild-assed guess, anyway."

Sep 26 01:34 AM

[BurkPhoto:]

Apple will revolutionize this space. They're building a HUGE facility here in NC to serve data. They have the ecosystem in place with iTunes and the App Store. They are building a seamlessly scaled platform with OS X. At some point, they are going to OWN content provision in this country.

If you haven't spent 15 minutes or an hour in an Apple store, you owe it to yourself to see what the buzz is about. If you haven't spent 15 minutes playing with an iPhone 3GS or the new iPod Touch, go play with one. You'll be pleasantly surprised.

This is a company with an extremely long view and an extremely wholistic approach. They want their customers to move easily from one of their products to another, and to be able to use any of them instinctively. They are ALL ABOUT the consumer experience with electronics. When you use their systems, you concentrate on the task, not the tech.

Watch what happens with this company in the next six months. It will be amazing, and I'm not just talking about the financial performance or the stock price...

Sep 26 10:57 PM

[Tom B:]

So, the Kindle let's you watch movie; listen to music; play games; make phone calls-- as well as read books?

Nope? What a limited device.

Sep 27 09:06 AM

[Tom B:]

So, the Kindle let's you watch movie; listen to music; play games; make phone calls-- as well as read books?

Nope? What a limited device.

Sep 27 09:06 AM

[rrtzmd:]

..."the iTablet"?????...WHAT "itablet"?!...there is NO "itablet"!!...for OVER FIVE YEARS now, there has been NO "itablet"!...why keep babbling about something that DOESN'T EXIST?!!...and "The Lost Symbol" sales mean little...that book was ON SALE in my local Krogers the SAME DAY it appeared on Amazon...I imagine that may have disrtorted the sales figures a bit, don't you?...and "access to books" is also meaningless...I have a program on my computer that bulk converts pretty much any format imagineable to Kindle compatible...and the DX already has it built in...so far, I can read ANYTHING currently available regardless of format...consequently,
I have access to MILLIONS of books -- from google, from my local library, and from hundreds, maybe thousands, more online sites..."I think people just probably aren’t willing to pay for a dedicated device."...uhhhh, excuse me?...didn't you just refute Jobs by saying that upward to 5 MILLION are expected to be sold this year?...and I think I saw estimates of sales reaching 12-15 million starting around 2012...doesn't THAT indicate that people are MORE THAN WILLING to pay for a dedicated device?

Sep 27 12:36 PM