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Amazon (NASDAQ:AMZN), which primarily competes with Barnes and Noble (NYSE:BKS) and Apple (NASDAQ:AAPL) in the eBooks market, has recently had three developments that we believe will help it drive sales of eBooks:

1. Lower Prices: Amazon Cuts Price on Kindle Device

Amazon has recently cut Kindle’s pricing by 30% from $259 to $189. In another article, we described that this move has not benefited Amazon’s Kindle Hardware business directly. However, increased Kindle unit sales as a result of the price cut will benefit eBook sales by increasing the e-reader user base (classic razor / razor blades model developing here).

2. Better Distribution: Kindle App on Apple and Android-Based Devices

Amazon’s Kindle app is compatible with Apple devices (iPhone, iPad) and Android-based devices. This means consumers can buy an eBook from the Kindle store and read it on a Kindle, iPhone, iPad, or Android-based device (smartphone or tablet). So even though the iPad has outsold the Kindle, Amazon still benefits from potentially wider distribution than it had before the iPad was introduced.

3. Bigger Inventory: More eBooks Available

Kindle has an edge over Apple in terms of the availability of eBooks. Kindle has steadily increased the inventory of eBooks and has about 600,000 eBooks in its store. This also includes 109 of 112 of the New York Times bestsellers. In comparison, Apple’s iBook store has far fewer NYT best-selling titles.

Amazon Could Earn $800+ Million in 2010 From eBooks Sold to Kindle Owners

According to the research done by Foner Books, Amazon could be selling around 24 eBooks per Kindle per year. If we consider about 3 million Kindle units in use in 2010, Amazon could sell 72 million eBooks for 2010. If we consider the average pricing to be around $12 per eBook, Amazon could be earning $864 million in 2010 from eBooks alone that are distributed on the Kindle device.

The upside can be even greater if Amazon succeeds in becoming the eBook store of preference on the iPhone (50+ million sold), iPad (3+ million units sold) and Android-based smartphones / tablets, although the number of eBooks downloaded per device is likely to be lower for such devices.

If current trends continue, there will be more than 100 million iPhone, iPad and Android-devices in use within the next 1-2 years. Even if each device were to download only one eBook through the Kindle store annually (at $12 a piece), that would imply $1.2 billion of Amazon sales from non-Kindle devices.

Continued Initiatives Will Benefit Amazon’s Stock

We currently estimate that Amazon’s eBooks revenues will exceed $1 billion by the end of Trefis forecast period. We also estimate that Amazon will increase its share in the US Online Media market (Books, DVDs and Music) from 31% in 2009 to 34% by the end of Trefis forecast period, which will mean it could earn around $10 billion in revenue from Online Media sales in the US by 2016.

However, eBooks revenues could increase at a faster rate than we currently forecast if Amazon were to benefit from higher Kindle sales and traction on non-Kindle devices. If eBooks revenues were to reach $2 billion by the end of Trefis forecast period, it would imply Amazon market share in US Online Media sales would reach 38% instead of the 34% that we forecast and suggest an upside of 2% to the $119 Trefis price estimate for Amazon’s stock.

Disclosure: No positions

Source: 3 Amazon Initiatives That Can Make eBooks a Billion-Dollar Business