Kindle Demographics versus the iPad's
January 28, 2010
In our September 21, 2009 Blog we wrote that;
Kindle may be the first general purpose technology device in which the early adopter demographic favors the over-54 age bracket instead of the usual 18-34 age bracket, "effectively turning one perennial marketing trend on its head." See pie chart below.
With the launch of the iPad behind us, we can finally compare the two emerging services (see below). Over the next few years we believe that demographics will split the e-reader consumer base into two camps, with those 35 and older going with Kindle (the over-55s in particular) and the 18- to 34-year olds going with the iPad.
It seems strange that Apple has given the over-55 consumer to Kindle without a fight. A recent poll by Pew Research shows that Boomers still place reading a book, magazine or newspaper high up on their daily activities. The Kindle was the most common 2009 Christmas present for the over 60s, and Amazon's e-books out-sold paper books for the first time on Christmas day. We believe that the Boomers like its low price, simple lines, key board and the fact it is "Grandchild proof."
Also older or more serious e-book readers don't want a multifunction device with an LCD screen. They spend far too long staring at those screens for work and want to read normally, by ambient light. Kindle also uses a low-power e-Ink screen and offers much-longer battery life.
The problem that Apple faces is that it has launched a beautiful product (robust?), with a high price into an emerging very value conscious consumer bracket. We do not believe that the iPad will end up in the Computer History Museum, however with the current price point, the company's legionary marketing team have their work cut out.
Thinking out of left field, perhaps the iPad will end up replacing the lap top. Just as the lap top has replaced the desk top in many cases, as the primary computer. Also Kindle could allow the newspaper industry to monetize Boomers' love of newspapers and magazines. If that is the case, newspaper stocks could be tomorrow's interesting contrarian play.
We will visit the two companies valuations tomorrow, with the release of Amazon's earnings tonight. The company is expected to report an EPS of $0.72 on revs of $9.04 billion for Q409. Amazon.com hasn't reported below Street EPS estimates since the fourth quarter of 2007.
We have reintroduced Amazon back into the model Beacon Master Portfolio, having sold them at the beginning of January at $130.
Market Watch: But despite the physical attractiveness, the iPad may have some issues that could dampen its immediate appeal.
For one, there's the price. At first blush, $499 for an entry price tag seems far lower than anyone was expecting. But that only gets a WiFi-capable device. To get one that will work on a wireless network, a customer has to shell out at least $629 up front and $30 a month for unlimited data -- putting the total ownership cost of the iPad above $1,300 for a two year period.
Given that Apple is hoping to take share from the Amazon Kindle, which can be had for a comparatively cheap $259 with no monthly charges, the iPad may be a tough sell to reading fans, at the very least, even with its many additional functions, such as Web browsing.
Another rub for readers might be book prices. Unlike the launch of the iTunes music store, where the 99 cent price per song was a widely-touted feature, Apple did not tout a standard price for the new iBookstore. In a demo by Jobs, in which he purchased "True Compass" by Senator Edward Kennedy, the cost of the book was $14.99. Amazon has pushed publishers to keep their prices at $9.99 or under.
It's too early to say whether the iPad is going to shake up any industries, take down AT&T's network, or end up as an exhibit in the Computer History Museum like the Newton. But it sure it pretty to look at.
