Ebooks are outselling print books on Amazon. During the second quarter of 2010, Amazon sold 143 ebooks for every 100 print books. The gap between ebook and print book sales is widening. In June 2010, Amazon sold 180 ebooks for every 100 hardcover books.
While Amazon’s Kindle occupies the dominant position in the ebook market, it faces stiff competition. The Apple iPad is gaining ground quickly on Amazon, with the iPad capturing 22 percent of the ebook market in its first 60 days. However, since many readers want a dedicated e-reader in addition to the iPad, the Kindle and iPad may be complements rather than competitors. Amazon’s recent price cut on the Kindle has spurred sales of the device. More Kindles equals more ebook sales.
But new entrants are entering the ebook business. For example, Border’s just opened a 1.5 million volume ebook store and released e-reader applications for Blackberry and Android phones. Only Amazon has more ebook titles.
Analyzing Competition In The Ebook Market
How will competition affect the industry players? The good news for ebook competitors is that the market will continue to grow. Goldman Sachs recently forecast that sales of ebooks in the U.S. will increase 47 percent each year until 201o, with ebook sales reaching $3.2 billion by 2015.
According to this forecast, ebooks will constitute 12.8 percent of all book sales by 2015. Ebooks currently make up three percent of total sales. Goldman expects print book sales to fall one percent each year through 2015.
Despite intensifying competition, the ebooks market will remain an attractive market. Although profit margins on the ereaders are low, margins on the ebooks currently run over 20 percent. For this reason, we can expect to see more players enter the ebook market. The important point is potential industry earnings for the ebook market will grow.
As the number of incumbents increases, there will be a shakeout as device features, convergence around a few ebook formats, and ebook library size separate the winners from the rest of the pack. One question is when will the shakeout begin? With Amazon cutting the price on the Kindle and Barnes and Noble doing the same for the Nook, I would expect a shakeout in no earlier than one year, but probably less than two.
Aside from continued growth, the ebook market is full of uncertainties. That makes the market one where competitive strategy will matter, and thus a market to watch.
What do you think will be the key determinants of competitive success in the ebook market? And who do you think will have the largest market share one year from now? Two years from now?
Douglas Y. Park
Twitter: @DougYPark
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