Citigroup Makes Bold Kindle Projection Based On...Well...Guessing

Citigroup Analyst Mark Mahaney is getting a lot of attention for predicting that Amazon.com's Kindle ebook reader will be a smash, iPod-like hit -- based on looking at the reviews on Amazon.com. Which may be the lamest bit of Wall Street analysis that I can recall.

First of all, Amazon has kept a tight lid on any information about Kindle sales. Mahaney admits he's got nothing from the company. In my interview with CEO Jeff Bezos, I asked him how many Kindles have been sold and he refused to say. Mahaney pieces together the fact that Amazon can't keep up with Kindle demand, the device's sales ranking on Amazon's site, and the number of customer reviews of Kindle posted on Amazon, and guesses that 10,000 to 30,000 have been sold in about three months.

Then Mahaney applies lessons from the iPod's adoption rates, and predicts that the $399 Kindles will generate $400 million to $750 million in revenue by 2010.

Now, nothing against the Kindle. It's a pretty cool device and maybe it will indeed catch on. But, for starters, quickly selling 10,000 to 30,000 of any product doesn't mean anything. That number barely scratches the surface of the early-adopter market -- the kind of people who will buy a new gadget just to say they own it. There is no perspective that can lead to solid conclusions about what that kind of sales volume means to later adoption. For that matter, Apple sold 10,000 iPhones in Germany alone on the first day it was offered there. A Tibetan lama rapper sold 30,000 copies of his CD in Taiwan in three months.

Amazon not keeping up with demand only means Amazon underestimated demand. The reviews and votes on reviews certainly should make Amazon feel like it's made a good product, but they don't necessarily translate into buyers.

Others have been skeptical about the Kindle's sales and prospects. Why this Henry Blodget-like effusiveness from Citigroup? (Funny, huh -- Blodget, famous for his wild predictions about Amazon when he was a real Wall Street analyst, jumped right on Citigroup's Kindle bandwagon on his blog.)

Again, the Kindle may indeed do well. But drawing that conclusion from the information available so far seems irresponsible.

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