The Amazon Kindle Fire might be a more profitable than you think, says RBC Capital analyst Ross Sandler, who assessed the results of a survey of 216 Kindle Fire owners.
“Our assumption is that AMZN could sell 3-4 million Kindle Fire units in Q4, and that those units are accretive to company-average operating margin within the first six months of ownership. Our analysis assigns a cumulative lifetime operating income per unit of $136, with a cumulative operating margin of over 20%.
Other findings from the survey:
- The two most frequent users for the Fire were e-book reading, at 71%, and browsing the Web, at 39%. Playing game was cited by 29%, and using apps, 20%. Only 13% named streaming video as a most frequent activity.
- The most important reason given for buying a Fire? 47% said it was a gift. 27% cited features. 20% cited the price. “We were somewhat surprised that features outweighed price, which contrasts some of the early reviews by the Technorati,” he writes.
- Over 80% of Fire owners have purchased an e-book, and 58% had purchased more than three e-books within 15-60 days of buying the Fire. He estimates that customers will by 5 e-books per quarter. At a $10 ASP for the books, he says, that would mean $15 in e-book revenue per quarter.
- 66% of the survey group had purchased at least one app; 41% have purchased three or more. He assumes 3 apps per purchase per quarter, suggesting $9 in paid app revenue per Kindle Fire unit per quarter at above-company average operating margin.
- 72% of the sample had not used the Fire to buy physical goods on Amazon.com. Of the 26% who had, a third said the purchases were incremental to what they would have purchased on the site otherwise. 51% increased their physical purchases on Amazon “slightly to significantly” because of owning the Kindle Fire.
Kindle Format 8 (KF8) is the next generation file format (replacing Mobi 7) for Kindle books. KF8 supports HTML 5 and CSS 3. Amazon updated their Simplified Formatting Guide to show you how to take advantage of Kindle Format 8. Kindle Formatting Guidelines, including a full list of supported HTML5 and CSS3 tags, can be found here (pdf), along with Conversion Resources.
HTML-based e-book formats like EPUB, Mobipocket and Amazon’s Mobi 7 (a variant of Mobipocket) are all based on subsets of HTML. However, the existing e-book formats are limited, offering publishers little control over fonts, layout, and text formatting. KF8 goes a long way to improve font and layout control but does not yet offer embedded audio or video tags.
Forrester estimates ebook revenue will go from $1 billion/year in 2010 to $2 billion/year in 2015.
