Amazon's Kindle: What's Mark Mahaney Smoking?

Whatever it is, I would like some. According to Henry Blodget, the Citigroup analyst seems to think that Amazon (AMZN) will be selling $750-million worth of its Kindle e-book readers within two years. What actual data is this analysis based on, you ask? Absolutely none whatsoever, as Kevin Maney points out at Portfolio, since the company has refused to give any details about Kindle sales. In other words, it’s just a bald-ass guess. And as far as I can tell, it’s a howler.

As Henry himself knows all too well, making outlandish claims about what stocks and/or products will do in the future can get you noticed pretty quickly — so maybe that’s what Mark is after here. Or maybe it’s a kind of thought experiment, in which you run some theoretical numbers in order to get a rough sense of what might happen. In any case, while Henry seems to think Mahaney’s estimates are reasonable and even likely in some cases, the whole thing seems off base to me.

The Citigroup analyst figures that Amazon will see the same kind of sales growth for its e-book readers as Apple saw for its iPods, but will only sell about half as many. That seems hugely inflated. Like Mahaney, I have absolutely no figures to back me up, but I would guess that the market for e-book readers is less than one-tenth the size of the market for portable music players, perhaps even smaller. And the idea that users will buy a book a month just seems insane. And there’s also the Apple factor, as Rex and others have pointed out.

The only aspect that Henry seems to agree is “optimistic” is the idea that Amazon will make the same kind of revenue from e-books as it does from printed books. As Blodget notes, that doesn’t seem likely to happen anytime soon — since publishers will need to be convinced to sell them, and readers will need to be convinced to buy them, and that means they need to be cheap — and may never happen at all. I don’t know what Mark Mahaney was trying to do with his Kindle analysis, but if he was trying to make a credible argument, he failed.

Comments

[DataMan]

At $400 a unit (not including accessories) Blodget is projecting sales of 1.875 million units in 2 years. I have no clue what the Kindle production rate is but there is about a two month wait to receive shipment of a placed order, and this is with little or no advertising/promotion.
On the subjective side, I recently bought one for my wife. Within a few weeks, she was responsible for at least 12 sales to friends who had never heard of or touched a Kindle. That doesn't count the one that I am now buying for myself and another two for my sons. It's a compelling product. If you like Peter Lynch's subjective approach to research in the marketplace you've got to love the Kindle.
Regarding the "1 book a month" projection, it feels absurdly low. The one click ease of purchase from the Kindle store and on-screen promotions make impulse and planned buying equally easy. Today's Kindle buyers are early adapters and probably avid readers (my wife bought over a dozen books within the first week). Currently, Amazon does not support gift giving or public wish lists for the Kindle. When they add this feature it will result in more book sales.
I can't support Blodget's math but I wouldn't bet against this product.

[Noumenon]

I agree completely with User 195015. I was an early adopter and got a Kindle for my wife as well, and we both love the device - she more than me (the word "addiction" springs to mind).

For those who buy this -- and I don't know how many there will be -- one book a month is a ridiculously LOW estimate of sales. Anyone who buys a Kindle has ipso facto passed a tough screening proving that that person is a dedicated reader. Dedicated readers buy many more than one book per month, and buying a Kindle book is much easier than buying a hard-copy book.

This product is not necessarily the future of reading, but it (and its subsequent, better iterations) is absolutely a big part of the future of reading.

[Tom B]

It doesn't do anything an iPod Touch can't do, and it's expensive and ugly. The Kindle would have been cool 12-13 years ago.

[thomas k]

Kindle has access to 120,000 books, free EVDO wireless connectivity, larger reading surface, runs for days on a single battery charge, better to the eyes for reading for long hours which makes it a much better Infotainment platform and intellectual experience.
The IPod may never do all the above.
still Kindle has many percks and potential: mail, maps, free wikipedia access from anywhere,