Ebooks and the rate of growth

I keep seeing what amounts to a meme in the publishing world that laments the "slowing rate of growth"

Mark Coker, CEO of Smashwords, recently said "the rate of transition from print to ebooks is slowing." He's not alone. I see this particular meme everywhere these days. It makes me crazy because I know that many people who read that don't understand what's really being said because there's a sort of "the sky is falling mentality" about this that implies ebooks are a bubble that will implode one day much like the dot-com or real estate bubbles did.

It ain't so because OF COURSE the rate of conversion is slowing. That's to be expected.


For those who don't understand why this isn't a catastrophe, let's explore what rate of growth really means.

First, we need to understand what steady sales is. It's when you sell 100 units of a product in year one. And 100 in year two. And 100 in year three. That's steady sales. It's also a zero growth rate.

If you sold 100 units the first year, then in subesquent years, you sold 200, 300, 400, etc, you would increase your sales by 100 units each year, but your growth rate would be declining: 100% the first year, 50% the second year, 25% the third year, and so on. So even though you're improving your sales by the same amount each year, your growth rate is declining.

What does a growing growth rate look like? I'm going to keep the numbers simple here, so if you debut a product and it sells 100 units the first year and 200 units the second year you have a rate of growth of 100%. To maintain that rate of growth, your subsequent years need to look like this:
year 3:       400 units
year 4:       800 units
year 5:     1600 units
year 6:     3200 units
year 7:     6400 units
year 8:   12800 units
year 9:   25600 units
year 10: 51200 units

All of these numbers indicate a 100% growth rate. Is that sustainable? Not in the long term. Not in any industry. And it should be obvious why. (Clue: it's a lot easier to sell 800 units of something than it is 51k units.)

 So what happens if the growth rate drops to 50% in year 11?

year 11: 76,800 unit sold

In absolute numbers, that's still an increase of 25,600 units. That's roughly the same number of units sold in the first eight years combined. But the rate of growth has slowed to half of what it was in years past.

So what does this mean in terms that relate to ereaders?

To keep this simple, I'm going to work solely with the numbers I could find regarding the kindle, but you might want to keep in mind that the kindle is only a piece of the picture. It's a big piece, but it's still only a piece.

The kindle debuted in November 2007 but Amazon isn't usually forthcoming with it's sales numbers, so I did a little browsing for estimates. In January 2010, Techcrunch reported:
"The total number of all types of Kindles out there in users hands hit 3 million sometime in December, says a source close to Amazon."

In October of 2012, just 5 years later, Newzoo posted this headline:

"17.4 million active Kindle Fire users in US, 30.5 million active iPad users"

That's a helluva sales growth. It averages about 76% over the five year period (in absolute numbers that's 14.4 million more ereaders over 5 years). Because we've seen how the numbers grow exponentially with a steady growth rate, we can assume that the growth rate was higher in 2008 than it was in 2012, but in terms of absolute numbers, the number of ereaders out there is still climbing.

So if you've stayed with me this far, you can see that, even if everyone out there is right (and they likely are) and the growth rate is slowing, the sky is nowhere near close to falling.

I knew that degree in Business Administration would come in handy someday.