Amazon Earnings: Believe Half Of What You See, None Of What You Hear

| About:, Inc. (AMZN)

We’ve reached a tipping point with the new price of Kindle–the growth rate of Kindle device unit sales has tripled since we lowered the price from $259 to $189.
-Jeff Bezos, 2010

Read that sentence a few times over.

We’ve reached a tipping point with the new price of Kindle–the growth rate of Kindle device unit sales has tripled since we lowered the price from $259 to $189.

Most people, being careless readers, would misinterpret this as meaning that Kindle sales tripled. Even Claire Cain Miller at the New York Times (presumably not so careless) made this mistake, writing:

Of course the mathematically gifted among us know that a tripling of the growth rate of something is not the same as a tripling of something. For instance, if I sold 100 crates of bullshit in 2009, 101 crates in 2010 and 104 crates this year, the growth rate of my bullshit sales has tripled. Unfortunately I have not tripled my sales of bullshit to 300 crates.

Jeff Bezos’ disclosure on the tripling of Kindle’s sales growth rate was disingenuous. If he were honest, he would have just said that sales increased by _%. But sales were so pathetic that he just couldn’t admit it. I just watched a Bloomberg report that confirms this theory. The SEC asked Amazon (NASDAQ:AMZN) for Kindle sales figures, and the company responded that revenues were “not meaningful” in 2010. Aha!

I’m not done. What about this statement:

The Kindle format has now overtaken the hardcover format.

The problem with this statement is obvious. Hardcover books are a niche, high priced product. Bezos should have instead compared Kindle sales to sales of both hardcover books and softcover books.

When it comes to Amazon, believe half of what you see and none of what you hear.

So what’s Bezos saying now? Here’s a quote from the last earnings call:

And based on what we’re seeing with Kindle Fire pre-orders, we’re increasing capacity and building millions more than we’d already planned.

There’s no disingenuousness in this statement. But I just want to highlight this quote for the record. I think the Kindle Fire will fall short of Bezos’ expectations. This oversized iPod touch / undersized iPad does not fit anywhere in the minds of the consumer. Few people with a smart phone will buy it because the extra capabilities are marginal; and few people with a tablet will buy because it makes no sense to spend extra money on a redundant and inferior product. I do not think that any 7″ tablet will make significant headway over the long run because software developers are not absolutely committed to it; they either want to make apps for ~4″ smartphones or ~10″ tablets. It looks like Amazon will just have to learn this the hard way. They’ve certainly spent a lot of money on the commercials.

You can read reviews to your heart’s content, but my observation has been that gadget reviewers are a bunch of nerds with little sense for what will actually do well in the market. See the post where I predicted the Motorola (NYSE:MMI) Xoom would flop. It doesn’t help that most gadget geeks are financially illiterate.

Here’s a timeline of how I think the Fire came to be and what will happen to it. (Google (NASDAQ:GOOG) will not come in as a white knight to buy Amazon!):

Amazon releases the first Kindle e-ink reader. It sells well because the e-ink screen is amazing at replicating paper. It really does substitute books and people love reading on it. The e-ink screen is a competitive advantage.

Apple (NASDAQ:AAPL) releases the iPad. It sells well because it is an Apple product. People buy it without thinking about why they need it. Plus they can play Angry Birds on a giant screen. Apple gets a ton of free advertising. Enterprises begin to realize the potential. iPad becomes a major revenue source for Apple.

Amazon gets iPad envy. They are deluded by their prior success with the e-ink Kindle and think they can compete successfully with the iPad. They forget (or maybe never realize) that the e-ink screen was the prime selling point for the Kindle. They release a poor man’s iPad where the consumer gets what he pays for. Amazon hopes their timing is right–just in time for the holiday shopping season. Little do they know that the bulk of Fire sales are intended as gifts… not for end use for the buyers.

PREDICTION: Kindle Fire sales do OK, but not what Amazon was expecting. They still don’t release sales figures. After the holiday season, sales drop off a cliff. Support wanes (if there ever was support) for 7″ tablets from the software development community. The Fire suffers the same fate as the Playbook, despite initial success.