The countdown to Apple’s iPad, one of the most anticipated gadgets of the year (at least from the media’s perspective), has begun. Many believe that the device will change the content industry in a meaningful way, by being a counterweight to Amazon. The iPad has helped open up fresh wounds between Seattle-based e-tail giant and some of its publisher partners. In short, if you read the headlines, then you might be tempted to write off Amazon and its Kindle Reader.
But you would be premature and wrong, according the analysts at JP Morgan, who in a research note today allege that much like music and video games, two very popular digital media content categories, e-books have the potential to reach over 25 percent digital penetration. Which in turn means a sizable market for more than one player. In order to assess Amazon’s potential for continued success in the e-book category, the Wall Street investment bank looked at its track record with digital music:
Despite (a) Apple’s 4-year head start in MP3 sales and (b) Apple’s dominance in devices, we estimate Amazon had ~10% of the digital music market by the end of ’09. We estimate that, even if Amazon’s eBooks market share dips to 30%, it could still drive ~$900M in incremental revenue as eBook penetration grows. Note that Amazon (a) has enjoyed a head start with the Kindle store, (b) manufactures the dominant dedicated device and (c) has aggressively expanded the Kindle platform to PCs and smartphones.
This table lays out why they’re so confident about Amazon. Frankly, even without it, I don’t think we should view the iPad launch as a death knell for the Kindle. If there’s one thing I’ve learned about Jeff Bezos, Amazon’s founder and CEO, it’s that he always has an ace (or two) up his sleeve. Let’s wait for his next move.