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Citi Says Amazon Sold 500,000 Kindles Last Year; $1.2 Billion Business Next Year

by Peter Kafka
Posted on February 3, 2009 at 8:45 AM PT

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Amazon is set to unveil Kindle 2.0 next Monday at a New York press event. But how many of the original e-book readers has it sold already? Don’t ask Jeff Bezos and company–the Amazon folks delight in keeping most of the company opaque to the outside world.

But Mark Mahaney thinks he knows: The Citigroup analyst estimates that Amazon (AMZN) sold 500,000 devices last year. And he figures that the Kindle, which he delights in calling the “iPod of the Book World,” will become a $1.2 billion business by 2010.

Watching Mahaney get to his numbers makes for interesting reading, if you enjoy reading analyst reports: He derives the 500,000 number via a filing by Amazon partner Sprint (S), which handles the wireless service for the e-books. And he gets to the $1.2 billion number by assuming that Kindle adoption will be similar to that of Apple’s (AAPL) music player several years ago, and that Kindle owners will buy a digital book each month. (Click chart to enlarge)

Also worth noting: Mahaney’s larger thesis, which is that Amazon is making great strides at anticipating and adapting to a future where most of its inventory is delivered digitally. And as with Netflix (NFLX), that doing so isn’t an option–it’s required:

The structural challenge facing Amazon is that approximately 50% of its revenue is generated from the sale of books, music, and videos–three  product categories that are all in the process of being digitized. If Amazon can’t successfully jump the chasm from Internet-ordered/mailman-delivered media products to Internet-ordered/digitally-delivered media products, its financial fundamentals and its stock price will be significantly challenged.”

But maybe you don’t care about revenue models or stock prices. Maybe you just want to see shiny new gadgets. OK. Mahaney has a little something for you, too. Here’s what he envisions for Kindle 2.0:

  • Longer and thinner than Kindle 1.0
  • Less crummy key pad and buttons, so it’s less likely that you’ll accidentally turn the page
  • No touchscreen
  • No color screen
  • Price: Perhaps as low as $300, down from today’s $359

My prediction: The geeksugar people are going to be baking a new Kindle cake next week.

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  • Unless I read an early review that they are made of play-doe and smell of cow-manure, I'll probably get one.

    Something like this is the future of untethered reading, and since nobody else is in the race... If you could do e-mail on this thing there would be no reason (for me at least) to even consider a smartphone. It pains my eyes even to watch other people squint at their too-small devices
  • Peter Kafka
    I've read Mark's report, Mitch. Didn't want to bog down the story with his methodology, but I'll try a bit here. He and his colleagues are extrapolating from Sprint's most recent 10-Q, which includes a reference to "Certain wholesale devices.. activated on the network by our wholesale partners prior to selling the device to the end customer,
    which resulted in approximately 210,000 such additions being
    activated on our network during the third quarter 2008". He figures that there were another 100k of these activations in Q1 and Q2, and that the activations are referring to the Kindle. Mahaney: "Tie these points together with the knowledge that Amazon fully sold out its Kindle supply by mid-November, and it’s hard to escape the conclusion
    that Amazon sold approximately 500,000 Kindles in 2008."
    So there are his numbers and his logic. If you can find a different source, point us to it. Don't think we'll be getting data from AMZN for a very long time.
  • Peter Kafka
    Gar. Sorry - above comment is a reference to a comment left by a reader who didn't provide their whole name. Frustrating for many reasons.
  • jack perry
    Everyone wants to compare the Kindle to the iPod but the market for reading is much smaller than the music industry. Plus listening to music via an iPod is a similar experience to listening to a discman. Reading a ebook is much different an experience than reading on paper. If the book industry could get people to spend $300 a year on books, it wouldn't be in as much trouble as it currently is.

    Also, I have a problem with the revenue drivers. Amazon makes very little on the selling of ebooks. They sell to the consumers for $9.99 and in many cases that is the rate they are buying from publishers. Add in the cost of the wireless service that delivers and Amazon may actually be losing money on some transactions.
  • Mitch Engleman
    @Peter

    First - I updated my profile to include my last name - it didn't seem to be a requirement when I initially registered.

    Second - Thanks for the reply.

    The line in the 10Q about 'Certain Wholesale Devices' was the only mention I could find that might apply to the Kindle.

    Are there no other devices (ATMs, Security Systems, etc.) that fall under this umbrella? Maybe the analyst has confirmatino from Sprint or Amazon that the 210K figure actually refers to the Kindle.

    All of the Ifs, Probablys and Most Likelys don't sit well with me.

    The term 'certain wholesale devices' or similar didn't turn up in the Q1 or Q2 10Q for Sprint.

    I remain skeptical that the Kindle is selling in any real volume. Come on Amazon release some sales numbers.
  • jack perry
    I agree. Amazon release some sales numbers on the Kindle. What are you hiding? If released, I feel people will be disappointed by the numbers. Again, to compare to the iPod just doesn't make sense. How many Kindle ads have you seen? How many iPod ads? Even by that crude gauge, there isn't any comparison.
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About Peter

Peter Kafka has been covering media and technology since 1997, when he joined the staff of Forbes magazine. Most recently, he has been the managing editor of the tech and media Web site, Silicon Alley Insider. Read more »

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