All Things Digital

Amazon’s Kindle e-book reader may not be the iPod of the book world yet. But it will be some day if Citigroup research analyst Mark Mahaney has anything to say about it. In a report to clients Monday, Mahaney, who in May predicted the device would generate $750 million for Amazon by 2010, said the company could be on track to sell as many as 380,000 Kindles this year.

380,000 Kindles sold. That’s double Mahaney’s May prediction. And it’s an important number historically. “In its first year, that’s exactly how many iPods were sold,” Mahaney wrote. “Turns out the Kindle is becoming the iPod of the book world.”

But is it really? And on what sort of data is that pronouncement based? Amazon (AMZN) itself has disclosed no actual sales data for the Kindle. The company said only that the selection of titles available for the device has jumped 67 percent since its launch. Surely it’s impossible to extrapolate sales of 380,000 from that figure alone. So on what other data is Mahaney relying here? Just this, apparently:

1. An anonymous source recently told TechCrunch that Amazon has shipped 240,000 Kindles. That’s shipped, not sold.
2. Kindle tops Amazon’s Bestsellers in Electronics list
3. Kindle has more than 4,000 customer reviews, quite a few of them positive.

Not exactly an abundance of hard data, is it? Which is not to say that the Kindle isn’t well on its way to becoming the iPod of the book world, just that we won’t know for certain until Amazon tells us with hard sales figures.

OK. So maybe Amazon’s Kindle isn’t “the Zune of reading.” Certainly, that’s the impression given by CitiGroup analyst Mark Mahaney’s prediction that the e-book reader will generate three-quarters of a billion dollars for Amazon (AMZN) by 2010. That’s about 1% to 3% of the retailer’s revenue.

“We admit having very limited visibility into the current ramp of the Kindle,” he writes. “And there is the obvious point that Kindle sales could easily cannibalize existing AMZN book sales. But we believe the broader point is that it is not unreasonable to see the Kindle as having a material impact on AMZN’s revenue–low single digits–within two to three years. That may not sound like a lot, but given the company’s current $20 billion revenue run rate, that’s impressive.”

Sure is. If you have hard metrics on which to base such a claim. Sadly, that’s not really the case here. Because Mahaney’s estimate is based on, get this, Kindle’s sales ranking on Amazon’s site and the number of customer reviews it’s been given. From those stats, and Amazon’s apparent difficulty in keeping up with demand for the device, Mahaney figures that 10,000 to 30,000 have been sold in about three months. And then, referencing iPod adoption rates, he extrapolates his figure of $750 million by 2010 from that. Seems a jacktastic stretch of the imagination, doesn’t it?

As far as solutions for California’s $14 billion budget deficit go, taxing “digital property” is nearly as outlandish as Gov. Arnold Schwarzenegger’s proposed $4.8 billion cut in education spending.

Yet it’s being bandied about by Democratic State Assemblyman Charles Calderon, whose Assembly Bill 1956 would expand the state’s sales tax to digital goods–music downloads, e-books, pornography and what-not. “The notion of taxing tangible, physical property is really an industrial-era construct when we made widgets and sold widgets,” Calderon argues. “Now it’s not about widgets, it’s about information, and selling information and moving information.”

It certainly is, but is it really prudent to slap an iTax of 8.25% to 8.75% on such information? Especially when those who peddle it could pretty easily create a separate entity out-of-state and avoid it altogether? Driving away e-commerce certainly isn’t going to do California’s budget any good. “When you charge these taxes, all these e-commerce [companies] are going to move outside of California,” said Michelle Steel, a member of the California State Board of Equalization. “California is the high-tech state; why would you want to kick them out?”

Good question. Because if you do force them out, who’s going to provide the state with its massive tax windfalls? From an Associated Press report from January, 2007:

After cashing in more than 9 million shares valued at $3.7 billion last year, 16 Google insiders will owe the Golden State as much as $380 million in taxes–enough to cover the salaries of more than 3,000 state workers.”

The Amazon bears are growling this morning.

Shares in the company, which have already lost more than 20% of their value in 2008, slipped further in early trading (but recovered later), though Amazon said yesterday that profits more than doubled in its fourth quarter. “This quarter showed accelerated sales growth and record operating profits,” CEO Jeff Bezos said in a statement released with the earnings. “In our view, these unusual financial results are driven by one thing: continuously improving the customer experience.”

But such enthusiastic pronouncements didn’t matter a whit to jittery investors worried about a slowing economy and Amazon’s tight margins. Shares of the retailer, which closed yesterday at $74.21, fell 8.2% to $68.15 before opening bell today. And they slipped even further, to $66.49, after Amazon announced plans to acquire Audible in a deal valued at about $300 million - a premium of more than 20 percent over the audiobook retailer’s Wednesday closing price.

Perhaps investors haven’t yet realized that Audible controls an astonishing 95% of the online audiobook market and, as Staci Kramer over at paidContent notes, is the top spoken-word provider for Apple’s iTunes Store. Amazon almost certainly plans to distribute Audible content wirelessly via its Kindle e-book reader, which may turn it into the iPod of e-book readers whether Apple CEO Steve Jobs likes it or not. “It doesn’t matter how good or bad the product is, the fact is that people don’t read anymore,” Jobs said recently when asked about the Kindle. “Forty percent of the people in the U.S. read one book or less last year. The whole conception is flawed at the top because people don’t read anymore.”

That may be so, but as Jobs well knows they do listen. Which begs the question: Why didn’t Apple buy Audible? “We have long suspected that Apple would be the party most interested in acquiring Audible, considering the close ties between the two companies,” Richard Fetyko, an analyst with Merriman Curhan Ford, wrote in a research note this morning. “Audible’s audiobook content is sold within Apple’s iTunes online music store, which represents about 25% to 30% of Audible’s revenue. Also, most of Audible’s customers are iPod users. We would not be surprised to see [if] Apple made a bid for Audible to preserve its leadership in online-audio content distribution. There are no alternatives to Audible in the marketplace with any significant scale.”

According to last year’s safely-looking-ahead-to-the-year-to-come lists, 2007 was to be “a year of hyperdisruption for the technology industry”; it was to be “a year of significant developments” and “a year of evolution”; it was to be “a year of invention and innovation,” “a year of experimentation” and “a year of slow, but significant, change”; it was to be “a year of carnage,” but it was also to be “a year of great happiness and multiple blessings.” Above all, 2007 was to be “a busy year for technology.”

Which, as you’ll see below (and in our companion video), is pretty much how it turned out. What follows is Digital Daily’s abridged guide to the year in tech news–a fond reminiscence of what was, and our First Annual Year-End List For Year-End List Haters.

1. Yahoo Shareholders Reject Plan to Tie Executive Compensation to Company’s Crappy Performance
   Well, what do you know: Yahoo’s annual shareholder meeting didn’t conclude with CEO Terry Semel’s head piked on the exclamation point of the Yahoo sign outside company headquarters.

2. I Know It Was You, Fredo. You Broke My Heart. You Broke My Heart!
   Apparently, Fred Anderson is the “Fredo” of the Apple options backdating family.

3. We’ve Asked John Williams to Do a Special Performance of the Theme From “The Poseidon Adventure” for Our Q4 Results
   Who’s programming Microsoft’s on-hold music, Apple’s Phil Schiller? Waiting for the company’s third-quarter earnings call to begin yesterday, those listening in were treated to an instrumental piano version of Celine Dion’s “My Heart Will Go On.” From “Titanic,” the disaster movie.

4. I’m Proud to Say Our New “Soylent Green” iPod Is Made of 100% Biodegradable Greenpeace Activists!
   If you’re going to try to smear Apple for reckless environmental practices, you best have some hard epidemiological and toxicological data on hand, because goofy Photoshop treatments of the company’s marketing materials just can’t stand up to a blow from the Apple PR machine.

5. And Online Display Impressions Soared as More Americans Checked Their AOL Accounts for Old Times’ Sake
   To hear tell from Time Warner executives, the company’s better-than-expected earnings for the first quarter owed quite a bit to gains in online-advertising market share by its AOL Internet division.

6. Web 2.0 Audience in Mirror May Be Smaller Than It Appears
   How ironic is it that Web 2.0–the “participatory Web”–has far fewer participants than its architects would have us believe?

7. And for My Next Trick, I’ll Turn Myself Into a Complete Jackass
   If you’re going to demand that YouTube remove a video to which you object under the Digital Millennium Copyright Act, it’s probably wise to make sure that you actually understand the DMCA.

8. War Is Peace. Freedom Is Slavery. Ignorance Is Strength. DRM Is DCE.
   You can’t put frosting on manure, but HBO’s Chief Technology Officer Bob Zitter isn’t above trying.

9. We’re Naming It the Motorola STNKR, After Our Q1 Earnings …
   Carl Icahn was right. Motorola really is desperate for a new product. How else to explain a patent the company was awarded last month for a “communication device having a scent-release feature and method thereof.”

10. The Frienemy of My Frienemy Is My Enemiend
    If Microsoft is planning an acquisition in the online marketing and advertising space, it better act fast, because if it waits much longer there won’t be anything left to acquire.

11. How Would Monsieur Ellison Like His BEA Served? Mixed in a Bucket With Oracle’s Other Acquisitions?
    Looks like we may be in for another PeopleSoft-esque takeover drama …

12. I’m Just Biding My Time Here Until I Can Quit and Study Whale Feces Full Time
    Given the chance, how would you alter the course of your career? Well, if you worked at Microsoft’s Security Response Center, you might consider taking a job as an Olympic drug tester, a gravity research subject, or a “whale-feces researcher.”

13. Much Like Energy, BS Cannot Be Created or Destroyed, It Can Only Be Changed From One Form to Another
    If Steorn’s perpetual motion effort is anything like its e-commerce venture (and by all accounts things do seem to be going that way), the only thing in its future is insolvency.

14. From Now On, We’ll Be Known as Nlsn/NtRtings
    Looks like vowels won’t be the only accoutrements to be tossed aside in the rise of Web 2.0. The venerable page view is to be abandoned as well.

15. The Defendant Stands Accused of Copyright Infringement, Breach of Contract and Misappropriation of Dumb Luck
    According to popular legend Facebook founder Mark Zuckerberg once kept two versions of his business card in his wallet–one with the title CEO, the other with “I’M CEO . . . BITCH.”

16. Well, Here Come YouTube’s Video ID Tools. Guess That Means Godot Will Be Here Any Minute Now
    Google’s apparently finished “educating users about copyright law” and has moved on to the far more important business of making sure not to run afoul of it.

17. Look at It This Way: Now That Yahoo’s an ‘Ecosystem,’ the EPA Can Finally Declare It a Superfund Site
    “Our financial performance is not what we would like to see long-term.” This, from Blake Jorgensen, Yahoo’s chief financial officer who, just six weeks into the job, is already well versed in the company’s fiscal truisms.

18. Gates to Google: My Lyrical Technique Will Leave Your Body Weak
    Much as Microsoft Chairman Bill Gates fancies himself untroubled by Google’s incursions into his software empire, they clearly do chafe him a bit.

19. Newest Yahoo Mail Feature: BCC Beijing
    Sure, Yahoo signed China’s “Public Pledge on Self-Discipline for the Chinese Internet Industry,” a voluntary agreement to monitor and restrict information deemed “harmful” by Beijing, but did it have to take it quite so seriously?

20. Apple: Wham, Bam, Thank You Fanboi
    “I feel like a $200 whore.” That was one iPhone early adopter’s crass assessment of his feelings of self-worth, after Apple unexpectedly cut the price of the device by a third–just two months after it arrived at market.

21. In the Unlikely Event of a Water Landing, Sergey’s California King May Be Used as a Flotation Device
    With its onboard hammocks, full-size sofas and California King beds, it’s a wonder Google’s “party plane” has room for scientific instrumentation befitting the National Aeronautics and Space Administration, but apparently it does.

22. Act Now and Get a Downgrade to the OS You Really Want, ABSOLUTELY FREE!
    It’s looking more and more like the pent-up demand for Windows Vista we’ve heard so much about this past year is really just pent-up demand for Windows XP.

23. Dude, I Work for Friggin Forbes Magazine. Have You Heard of It?
    The year-long guessing game is over. New York Times reporter Brad Stone has outed Daniel Lyons, a senior editor at Forbes magazine, as the author of the Secret Diary of Steve Jobs, the satirical blog lampooning Apple’s iconic CEO (See? Told you it wasn’t me).

24. If Facebook’s Worth $15 Billion, Then My Stupid Idea’s Got to Be Good for $10 Mil
    Apparently the vainglory from which Facebook CEO Mark Zuckerberg appears to suffer is communicable and spreading rapidly throughout the social network’s developer community.

25. A Billion Here, a Billion There, and Pretty Soon You’re Talking Real Bollocks
    MySpace is worth $65 billion in the same way that Facebook is worth $15 billion–hypothetically.

26. “Apple Has Destroyed the Music Business”–Not That We Didn’t Try Our Best
    Many, many years ago, when the digital-music business consisted of little else besides Napster and the Recording Industry Association of America’s lawsuits against it, Apple proved that there was indeed a decent business to be had in selling music online for $1 per song.

27. It’s Not an Unpaid Endorsement, It’s a “Social Ad”
    Facebook’s Social Ads aren’t endorsements, they’re a “representation” of user activity.

28. Obama Announces “No Tech Policy Left Behind” Plan
    If Google’s mission is to organize the world’s information and make it universally accessible and useful, then Democratic presidential candidate Barack Obama’s is to do the same to its tech-policy issues.

29. Sounds More Like the “Zune of Reading” to Me
    If Jeff Bezos truly hopes to create “the iPod of reading,” observers say he’s going to have to do a hell of a lot better than Amazon’s new Kindle e-book reader.

30. Fiascobook
    What Facebook CEO Mark Zuckerberg lacks in foresight, he certainly makes up for in disingenuous hair-shirt remorse.

If Jeff Bezos truly hopes to create “the iPod of reading,” observers say he’s going to have to do a hell of a lot better than Amazon’s new Kindle e-book reader. Because though Kindle, with its paperback-sized form factor and an electronic display that reportedly looks and reads like real paper, might project an aura of bookishness, it doesn’t project much of a value proposition.

Amazon has priced Kindle at $399. It’s offering digitally rendered books for download over the device’s wireless Whispernet service for an average price of $9.99 a book. And it’s peddling subscriptions to newspapers like the New York Times for up to $14.99 per month and blogs such as the Onion at 99 cents per month. This, despite the presumably vast disparity between the manufacturing costs of dead-tree publications and digital ones. Apparently to Amazon, economies of digital distribution don’t translate into lower prices for the consumer, but greater revenues for the company.

“This is the most important thing we’ve ever done,” Bezos told Newsweek. “It’s so ambitious to take something as highly evolved as the book and improve on it. And maybe even change the way people read.” Change the way people read? Seems doubtful–at this point at least. Especially when Apple could easily develop an e-book reader for the iPhone or the multitouch tablet it’s allegedly prepping for market, launch it in concert with an iTunes bookstore or a partnership with Google Book Search and, ba-da-bing, turn the Kindle into the Zune of e-book readers.

“Google’s Book Search project has already pumped much of the world’s printed matter into Google’s servers,” writes Forbes’ Brian Caulfield. “Downloads of classic titles, such as ‘Bleak House,’ can already be had for free. Mix Apple’s iTunes content distribution smarts with Google’s vast storehouse of content, and you’ll have an instant competitor to Kindle–one with a touch interface and the ability to play movies and music, too.”

Course, if the primary market Amazon’s gunning for here doesn’t quite pan out, there may be another worth targeting: the textbook market. Says Good Morning Silicon Valley’s John Murrell: “No more crushing backpack-load of tomes, no frustrating trips to the bookstore trying to find what you need in stock, and, for the publishers, no need to hold off updating until there’s enough to make a new edition. If the textbook industry could get together on an open standard format, if schools and/or the industry subsidized the hardware, if the electronic bookstore would allow for sale or rental, if the device allowed for things like automatic handling of citations and bibliography … well, that’s a lot of ifs, but I think there’s something there.”