Kindle 3 as direct connection to Amazon

We look at the Kindle 3 and all we see is an eReader. However, you have to wonder what Amazon sees when it looks at the Kindle 3.

Paul Story has an excellent comment about whether or not Amazon cares about the future of the Kindle –

I think that Amazon cares a lot about the Kindle. They were working on it for three years before its release. We know they think and act long-term. They are sowing seeds.

First the plain text market and then note-taking and education to encompass a paperless society and then the fact that you have an Amazon vending machine in your hand will come into play. At that time, the Kindle will be everywhere and we will be buying tangible goods from Amazon.

Yeah, I think they care.

Let’s consider it from a strategy perspective.

What exactly is the Kindle 3?

Well, we get a few hints from the behavior of customers –

  1. Customers love their Kindles and will undoubtedly love the Kindle 3.  
  2. Customers tend to carry their Kindles everywhere. The Kindle 3 is even easier to carry everywhere.  
  3. Kindle owners buy more books than they used to. They mostly buy from Amazon.
  4. There are some customers who’ve admitted they’ve bought other things from Amazon because of being Kindle owners. That’s easy to imagine.
  5. Customers trust Amazon.

A Kindle owner has a direct and persistent connection with Amazon –

  • 1 month battery life to be directly connected to Amazon.
  • No computer required to buy from Amazon.
  • WiFi to connect to Amazon when 3G isn’t available.
  • Just $139 to get a direct connection to Amazon.
  • Kindle WhisperNet to get all these features that keep you in direct touch with Amazon.

It’s exactly what Paul said – It’s an Amazon vending machine in your hand.

The Kindle 3 is Amazon’s Vending Machine in your hands – It ensures there’s a direct connection to Amazon and it ensures you buy from Amazon.

Kindle 3 and Trust

Mr. Bezos talked about earning customers’ trust on the Charlie Rose show. His words were something to the effect of –

It’s very easy to lose trust and very hard to gain trust. We want to gain customers’ trust.

What he didn’t mention is that trust grows with every purchase and it grows if you always have an Amazon Kindle with you. It’s commitment and consistency – Every single Kindle book we buy makes us stronger Kindle customers and less likely to switch sides.

It’s building loyalty.

We’ve seen this with the iPod and the halo effect it created and how that’s helped sales of the iPhone and the iPad. Amazon is tapping into that magic with the Kindle.

Kindle 3 is the path of least resistance

How could Amazon get every single person to carry an Amazon Vending Machine with them?

There aren’t very many candidates – Phones are too competitive though Amazon may eventually enter this area. There aren’t that many other devices.

So the Kindle 3 suddenly seems like genius –

  1. Come in from an angle that not many people care about (reading books).
  2. Cater to the most valuable niche (people over 40 who read books and have disposable income). Let Apple fight for all the 17-year-old kids who have no money. Amazon wants the actual spenders.
  3. Come in with the most deceptively simple device.

No one is every going to suspect the Kindle 3 of being Amazon’s Vending Machine. It isn’t good for anything except reading.

Well, actually it is. It’s good for buying things from Amazon, it’s good as a direct channel to customers, and it’s good for earning trust and strengthening the customer-Amazon relationship.

You could argue it’s better suited to earning trust and building a relationship than any other device precisely because it puts so little focus on being new and flashy. Users aren’t buying it to show off or for an emotional high.

Amazon once sold only books

There can be no better argument for the Kindle’s future role as Amazon Vending Machine than Amazon’s past behavior.

Perhaps then, as now, Mr. Bezos figured out the least competitive area. One that had potential on its own and also provided an entryway to every other area. Trust transfers.

Once you’re buying books from Amazon you trust it and next thing you know you’re buying everything from Amazon. With the Kindle 3 it’s the same strategy – It’s just so painfully obvious and so similar to what Amazon’s used in the past that competitors are bound to miss it completely.  

Kindle 3 can easily be used to sell everything

You have to look at everything Amazon is selling online and ask yourself – What’s stopping them from selling all of these things via the Kindle 3?

The answer is that Amazon always thinks 10-30 years ahead. It’s almost as if they’re teasing. They now let you download 300MB Audible audiobooks to your Kindle 3 via WiFi. Yet they aren’t selling mp3 songs. It’s patience and strategy.

They focus on the area that’s not sexy enough. Both Sergey Brin and Mr. Jobs have stated that there is no future in books. Their companies’ efforts aren’t focused on reading and that allows Amazon to keep expanding – almost unchecked. If B&N hadn’t miraculously produced the Nook the eReader wars would be over by now.

Keep in mind that no one wanted mp3 players when the iPod took over. Their biggest competition was probably Creative. Now Google and Microsoft are both running scared.  

Once Amazon has thoroughly won the eReader war it will expand to replacing paper and once it has won that it will finally switch on the Amazon Vending Machines.

Kindle 3 gives Amazon customers without acquisition costs

How do you get customers?

You advertise for them. You take a hit on your first product. You pay Google for search traffic.

There are huge acquisition costs. There’s a ton of work and effort and thinking and the risk of failure. Well, with the Kindle 3 all that is gone.

If Amazon were, in 2011, to start selling groceries through the Kindle 3 they would have zero acquisition costs.

Safeway would advertize and buy Google traffic and put out promotions. All Amazon would have to do is push a button and every Kindle owner would know Amazon Fresh is now doing same day delivery.

Kindle 3 is FAR more important than Kindle Apps

With Kindle for iPhone Apple won’t let Amazon sell even ebooks through the app. With the Kindle 3 Amazon could sell cows if they wanted.

If you’re playing in someone else’s system it’s someone else’s rules. Different companies rule different channels and they all want a cut. With the Kindle 3 Amazon is suddenly free – It doesn’t have to pay any middle-men to reach its customers.

There is no Free on the Internet – which makes Kindle 3 critical

The Internet is perhaps the biggest example of the illusion of free. Ask any company or anyone selling a product if it’s free – It’s not. It’s frustrating and expensive and time-consuming and there are always people looking to take a cut.

It’s the same with Facebook or with the iPhone App Store. There’s always a 30% to 50% cut that the channel owner takes.

The Kindle 3 lets Amazon bypass all of this. A user logs on to the Kindle Store and buys a book. That’s it. Amazon doesn’t have to buy keywords on search engines and it doesn’t have to do advertising on Facebook and it doesn’t have to give out any cuts. 

Every company is doing this

Look around you – whether it’s Facebook with its App Store and closed off walled garden or Apple with its closed ecosystem. Every company is trying to build a direct channel to customers and enclose them in a beautiful walled garden.

Even the most open companies try to do this – They just do it in a smarter/stupider way (smarter because it seems open and stupider because it doesn’t work as well).

Kindle 3 as direct channel to customers

This is a recurring theme because it’s the best possible use of the Kindle. Kindle 3 not only shows Amazon’s commitment to readers it also shows its commitment to building a direct channel to customers.

  1. In October 2009 we talked about Kindle’s vital role as Amazon shifts to Digital Media.
  2. In September 2009 we had talked about how the Kindle will let Amazon bypass Google.  
  3. In January 2009 we had talked about Kindle as a Trojan Horse.

Amazon is doing everything it can to build direct channels to customers. Completely bypassing TV, the search engines, and every other middle-man.

It’s the way things should be – A very efficient world is one without middle-men. Even sites like mine are just information arbitrage – In a perfect world the best reviews and tips should be available to prospective owners through other owners.  

Efficiency means eliminating all the middle-men

The Internet has improved things a lot – However, one set of middle-men have been replaced by another set of middle-men. A huge amount of companies on the Internet are working on arbitrage – it might be information arbitrage or it might be very well disguised arbitrage but it’s arbitrage nonetheless.

Just as we moved from a situation where middle-men had total control to a new situation where middle-men had less control (or one middle-man seized up all the control) we will move to a situation where middle-men are non-existent.  

Kindle 3 and Apple iPhone are two great examples of this. There is no-one except the platform between buyers and sellers. We haven’t had a situation where creators could get 70% of sales in a very, very long time. We know that Publishers used to give authors only 8-15%. However, similar situations exist in lots and lots of markets. The platforms will destroy this. Creators suddenly have a 70% cut for themselves.

Kindle 3 is, without a doubt, the Amazon Vending Machine

If a company were greedy or impatient it would try to cash in too soon. If it were too smart for its own good it would make the Kindle multipurpose to try to sell more quickly.

Amazon is doing neither. It is willing to keep building out its platform and to keep creating direct links with customers. It’ll only switch things on after everything is in place and can’t be undone.

You’d think that would be when there are 10 million Kindles sold. However, this is Amazon. It is going to wait for 50 or 100 million Kindles sold and only then switch on the Kindle Vending Machine.

In a customer-Amazon relationship Amazon has a right to think that no-one else should get a cut. How could it ensure that? Well, build out a direct channel and bypass everyone. That’s what the Kindle 3 represents.

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