Market Insight

Amazon ebooks now outselling physical books


 

Amazon sales of ebooks have passed the number of combined paperback and hardback books sold as of April this year, at a rate of 105 ebooks to every 100 print books sold. The online retailer did not reveal actual sales figures for ebooks or print books, but mentioned that ebooks in 2011 have so far sold more than three times those sold during the same time in 2010. The company also reported 2011 growth in sales of ebooks and print books combined, in terms of units and revenue, was the fastest year-on-year growth for Amazon's US book business in over 10 years. Free ebooks are not included in the sales figures or growth rates given by Amazon.

Amazon began selling ebooks less than four years ago with the launch of its Kindle e-reader, and now has over 950,000 titles available in its U.S. Kindle store. The company also noted that its recently launched discounted 'Kindle with Special Offers' has become the bestselling device in the range.

Amazon is well ahead of the overall market in its transition towards digital book format. The Association of American Publishers reported strong growth in ebook monthly revenue for March 2011, which grew 145.7 per cent year-on-year to $69.0m. By contrast, print trade books (general consumer fiction and non-fiction) generated five times the revenue of ebooks during the period - $331.2m, up by 3 per cent compared to March 2010.

The success of Amazon's digital book service can be attributed to the tightly integrated device and content ecosystem. Having started with an ereader-store tie-in, which replicated the seamless user experience of the Apple's iPod-iTunes ecosystem that has propelled the iTunes Store to the dominant position on the music market, Amazon extended the ecosystem to third party devices through Kindle apps for PCs/Macs and iOS, Android and Blackberry devices - a strategy similar to that of Netflix, which has achieved a wide reach on connected living room devices by partnering CE manufacturers to offer its app on games consoles, connected TVs and blu-ray disc players.

The higher volume of ebooks shifted by Amazon has also been helped by highly competitive pricing of its ebooks: over 80% of Amazon's current US Kindle catalogue is priced at $9.99 or less. Historically, Amazon was also able to heavily discount bestsellers (often to a price point below the wholesale price paid to publishers). However, there has been a backlash to this strategy from major publishers, with five out of the Big Six US publishers adopting the agency model, whereby consumer price is set by the publisher, who takes a 70 per cent cut, leaving the retailer with a 30 per cent revenue share.

As Amazon expands the Kindle store into new territories, particularly in continental Europe, it will face even sterner limitations on book price discounts. For example, in Germany, where Amazon has opened a Kindle ebook store earlier this month (its second international store after the UK - an unsurprising choice, given that Germany is the only market where Amazon's MP3 store managed to secure a sizable market share), agency model is instituted by law for all German-language books. However, of its 650,000 strong ebook catalogue in the country at launch, just under 4% (25,000) are German-language titles. While the fixed-price laws do not apply to English-language titles, meaning Amazon has the wiggle room to pursue its usual aggressive price strategy, such catalogue naturally limits the appeal of the store.