Online retailer Amazon.com, Inc. (NASDAQ: AMZN) is looking to extend the reach of its Kindle -- a wireless reading device -- into the hands of consumers, and hopes that cutting the price will speed adoption in a price-sensitive world. Formerly priced at $359, the Kindle will now be sold for $299, though the more advanced Kindle DX will still maintain its $489 price tag.
Amazon, known mainly for selling books online before branching out into other areas, has made the Kindle a focal point of creating new growth for the site. The company has been offering generous 10% payouts via its affiliate program for creating sales, compared to the typical 4% paid on other items. A June 30 research report from Cowen & Co. obtained by DailyFinance estimated that 800,000 Kindle units had been sold so far; the company estimates that more than 2.6 million will be sold by the end of 2010.
There has also been talk that Amazon will move to subsidize e-book downloads to enhance the attractiveness of the Kindle as a money-saving device for heavy readers. Selling advertising has been one method seeing discussion, but Dan Frommer thinks that's a dead-end solution because there aren't enough opportunities to advertise in a book at high enough rates to make the venture economical. His numbers are persuasive, and with the typical e-book already heavily discounted, it's the device cost -- not the unit cost -- that will drive further adoption.
As has been demonstrated across the consumer electronics spectrum, costs will come down. As the Kindle gains traction, there will be economies of scale found in production, and lower component costs will push prices down more over time. The real boost to Amazon lies in the long-term value to be had from the Kindle e-book being the dominant format, and their e-book marketplace having the best selection -- not the profits to be had from a device that will face competition and cost pressures at all stages of the product cycle.
Luckily for Amazon shareholders, management seems to recognize this and is acting strategically to position the company for success. With a fat 40x forward earnings multiple on the current stock price and huge growth expectations stretching far into the future, investors need to assess whether Amazon can afford to forego device profits now in return for better prospects sometime in the future.
James Cullen also edits and writes at CollegeAnalysts.com. He is the Vice-President of the Boston College Investment Club, which owns AAPL, but has no personal position in the stocks mentioned above.
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Reader Comments (Page 1 of 1)
7-09-2009 @ 10:20AM
Beltway Greg said...
The Kindle is so Atari. It's for old people.
7-09-2009 @ 10:35AM
Kara said...
Stupid Kindle. Seriously...what a god-awful idea. I don't know a single person who owns one or WANTS to!!!
7-09-2009 @ 11:29AM
Tenorsinging said...
OMG you have NO idea what you are talking about. I am young, and I LOVE my Kindle. I love being able to have a huge variety of books to read when I travel without adding pounds to my luggage.
You can't just lump one group of people into everything. Kindle can be used by anyone who enjoys having 1500 books at their fingertips, and for those who may need the TTS capability.
7-09-2009 @ 12:37PM
nolabill said...
Beltway Greg.....so what's wrong with old people.
Kara.....I have one and it's great.
As a member of several book clubs (and read alot)
it is very cost effective to own.
Most negetive comments are from people who have
never used one.
7-09-2009 @ 12:43PM
Allison Rafferty said...
OR you could just buy a damn book for about $15.00!
7-09-2009 @ 3:20PM
marshall said...
Ill get one of these things when a book club gives them out free with a subscription. I don't like the idea of dropping a $300 book and breaking it.
7-09-2009 @ 4:30PM
marshall said...
OK you can download a newspaper, but what if you like doing the crossword puzzle. I guess you could put a piece of clear plastic over it and use a felt pen. It just seems like a lap top can do anything this thing can do, and who would buy this, that doesn't already have a lap top. What does the higher priced one do that this one doesn't? Sorry this is a loser!
7-09-2009 @ 5:47PM
Kpryor4378 said...
Ouch...Belt way Greg!
I've owned my Kindle for over a year. Love It. Have you ever been in the middle of no where, without a good read? I Kindle will never let that happen. As to the cost...if you're a serious reader, you'll recoup your investment quickly and you won't have to deal with the piles of books. Actually, I know at least 10 people w/a Kindle. Come on....look to the future! Kindle up Boys!
7-11-2009 @ 8:17AM
Beltway Greg said...
The Kindle is, how do the smart people phrase it, a loss leader for Amazon. They buy the books for $15 and then sell them for $10 just to move the hardware. Sounds good right? Well not so fast because if people who download copious amounts of books buy the Kindle and the general public stays away from it, they could actually end-up losing money despite its apparent popularity though I'm a bit concerned when a company won't release sales figures.
They have to do something with the graphics. Oh well, Apple will just have an ap for books and you can kiss the clunky Kindle goodbye. It will be the Jitterbug of devices.
On the bright side, Bezos seems to be in great health for all of you who trade on such esoterica.
7-19-2009 @ 4:54AM
jerv said...
I have a whole library of books on my Aspire One that was about the same price as a Kindle.
I can do all sorts of things a Kindle can't. Try watching videos at a decent framerate on a Kindle. I got a larger screen with color, *far* more storage, and when not in use, my screen is covered in a hard, plastic shell so I don't have to worry about punching a hole through the LCD.
What is the big deal about the Kindle?
7-20-2009 @ 8:13PM
Beltway Greg said...
You dated the Kindle but you're going to marry the Itablet. Moses brought the 1O Commandments down from the mountain and he needed to add one more. Though shall must not have a poor user experience. Behold Apple products and Barnes & Noble.