Kindle Economics

I’m pleased to bring the commentary of a couple of the publishing industry’s most experienced and respected voices to conjecture on the economic ramifications of Amazon’s Kindle.

First, Jason Epstein has kindly agreed to share a back-of-the-envelope analysis of the Kindle in light of the common “razor and blades” analogy, in which some observers argue that Amazon would be better off giving the Kindle away nearly for free and making it up on the volume of book sales; Jason demonstrates why this would be difficult under a generous range of assumptions.

Next, Mike Shatzkin considers the impact of the Amazon Kindle on future industry positioning, and the kinds of alliances that might prove to be necessary competitive responses to Amazon’s unique combination of assets.

A short bio for introduction, followed in turn by the contribution.

Jason Epstein worked in book publishing for more than 40 years. He was editorial director of Random House and founded Anchor Books, the New York Review of Books, the Library of America, and the Readers Catalog. He is now the co-founder of On Demand Books, a purveyor of a groundbreaking distributed print-on-demand solution.


Amid the abundant comment inspired by Amazon’s Kindle I find little if any discussion of its cost to users. To put it in the simplest terms, the first twenty copies at Amazon’s proposed retail price will cost $30 each; the first forty will cost $20.00 each and so on.

A reader who prefers an electronic version to a printed one would be better off buying a physical copy, scanning it and reading it on whatever device he or she chooses. If on the other hand Amazon goes the way of Gillette as has been proposed and gives the Kindle away or offers it at a promotional price the situation is worse.

Suppose Amazon buys the Kindle from its maker for $300.00 and offers it to potential customers for, say, $30.00, so that for every thousand potential customers it invests $270,000, and suppose further that as many as half of these customers — a generous estimate — order books at $10.00 each for which Amazon probably pays the publisher $6.00, leaving a gross margin of $4.00, half of which is probably expensed as overhead. Then before Amazon breaks even on its promotional offer each customer must buy 270 books.

Endless permutations are possible, but those within the bounds of reason suggest that the Kindle is a very expensive way to read a book. Gillette, on the other hand, probably pays a dollar or two for the razor it gives away and then charges practically everybody over twelve years old $25.00 or so per year for blades that must cost next to nothing per unit.

Mike Shatzkin is the Founder & CEO of The Idea Logical Company and of He has four decades of experience as a published writer and working in all aspects of the publishing industry — writing, editing, agenting, selling, marketing, and managing production.


I have been reading as much as I can find about this for a week. I think there’s consensus on two things: Kindle is here to stay and Amazon will disrupt the ebook supply chain as much as it did the physical book supply chain a dozen years ago.

1. The most important new factor favoring the Kindle is the number of titles Amazon has ready (they say 90,000) and the high likelihood that they can grab most straight-text titles of importance going forward.

2. Kindle will definitely “work” in this sense: many people will have it and many people will become missionaries for it. And because it is tethered to Amazon, it will only grow in features and content supplied, regardless of how well sales of devices or books compare to (internal) forecasts (that we will never see).

3. The combination of “first mover advantage” and “device lock in” creates an urgent problem for other device plays (Sony and iPod certainly among them, but also Blackberry, Treo, and many others) and other book retailers (Barnes & Noble and Borders certainly among them, but also Powell’s, Book Depository, all BookSense stores, and e-book retailers like Fictionwise and Motricity.)

4. The key stumbling block for a potential competitor is having a title database that can rival what Amazon has and there are only two potential sources for that: Google and Ingram’s Lightning. For political reasons, Lightning is in a stronger position to challenge Amazon going forward than Google is (since many publishers are still afraid of making current titles available to Google, which strikes us as unwarranted paranoia, but is certainly a fact.)

5. Will we see Lightning, B&N, and Apple join forces? or Lightning, Borders, and Sony? If they do, will they see the virtue of opening up the model to allow other devices and other retailers to ultimately get into the game? We can see ways to do that would permanently reward B&N and Apple for getting the ball rolling, but it would be a change from their historical practices to allow it.

6. Clearly, publishers share the urgent interest of device manufacturers and competitive retailers to open up the ebook game. And so does the public, which would benefit from the same sort of “let all flowers bloom” atmosphere for devices and solutions that we saw with VHS machines and PCs 20 years ago and that we see with cell phones today.

7. There will be no “iPod moment” for books. One device won’t do it. The difference between an illustrated book and a novel requires a form factor change; the difference between classical and jazz does not. We pretty much just “listen” to music; we mark books up and refer back to them in ways we don’t customarily with music. It will require more than one device to “replace” books, even to replace just straight text books.