The recent release of Kindle with Special Offers seems to suggest Amazon is considering having a family of Kindles comprised of three distinct types of members -
- Kindles in a pure and unadulterated form.
- Groupon Kindles. The basic Kindles transformed into a means of offering deals on everything Amazon sells (and on lots of things it doesn’t).
- Ad Kindles (thanks to Mickery for the name AdKindle – it’s perfect). The basic Kindles transformed into an advertising vessel.
If you consider Amazon’s long-term approach to everything, it’s pretty obvious that Kindle with Special Offers isn’t where the journey ends – it’s just the first step.
Why would Amazon want to add deals and/or ads to the Kindle?
For lots of reasons -
- Amazon can cut down on price and increase sales. While the $114 AdKindle isn’t impressing too many people, a $99 version would have a big impact.
- There are people who want Groupon type offers. Tens of millions of people follow deal sites like SlickDeals and subscribe to Groupon and Living Social. Quite a few of them would want a deal delivering Kindle – even ones who don’t read very much.
- Rather than challenge other niches like phones and tablets head-on, it makes a lot of sense to expand the Kindle’s functionality and market gradually.
- Amazon is making a concerted push in advertising. It’s been showing ads on Amazon.com and it’s probably begun thinking of the Kindle as a means to add to the advertising push.
- Groupon and Living Social are threats to Amazon in the long term. They are the #1 and #2 destination for group buying deals on ‘events/experiences’ - they could easily expand into deals of all sorts. Imagine Groupon having deals on computers and books. It’s not very far-fetched.
- Google is bound to bring advertising to books. Perhaps Amazon wants to do it before Google does. Perhaps Amazon is just beefing up its advertising in books patent defence by introducing a product that uses ads to an extent.
- There might be a very big market for people who want to use Kindle as a shopping device for everything.
- Perhaps ebooks going to $1 (or even zero) is looking like a strong possibility. Amazon might need to figure out a way to make profits from the Kindle in other ways.
- Amazon might have hit a wall in its attempts to increase Kindle sales (or perhaps it expects to). If so, then the only way to further increase sales would be to expand what the Kindle can be used for.
There are actually a lot of very good reasons for adding in Groupon style deals and iAds style advertisements.
It’s very interesting that Amazon is going about it in such an incremental fashion – All it is, is a minor software upgrade.
Economies of Scale
Amazon has brought the Kindle price down to $139 (for the Kindle WiFi). The next big milestone is $99.
How does it hit $99 quicker? One option is Kindle with Special Offers.
What does it do after hitting $99 (to expand further)? One option is a Groupon Kindle that offers deals in addition to ebooks.
To develop eInk and Kindle further Amazon needs money. To get money it needs lots of sales. To get sales it needs to offer lots of value for money and low prices. To lower prices and increase value for money Amazon needs a better Kindle. It’s a bit of a cyclical problem. One way out is to sell AdKindles and Groupon Kindles.
Amazon is stuck – It needs to compete against devices like phones and tablets that are evolving very quickly. It doesn’t yet have the economies of scale to do so - So, it has to figure out a way to get similar economies of scale. Increasing Kindle sales is the only option.
Why would Amazon want to create a Groupon Kindle?
Because it sells everything.
Amazon always talks about how people buy a lot more books from Amazon once they own a Kindle. It never mentions another possibility – That Kindle owners buy more ‘things that are not books or ebooks’ from Amazon than they used to.
The last thing it wants is for WalMart and brick and mortar retailers to know that it’s found the next big magical step in customer loyalty and increased sales.
It probably has.
Kindle with Special Offers is a tentative step. Trying to get one step closer without anyone realizing what this is really about. Once Amazon has gotten a Kindle into a customer’s hands, and gotten that customer onto Amazon Prime, it’s game over – other companies can’t touch that customer 90% of the time.
Its enemies are probably using lobbyists to attack Amazon via the sales tax movement (just conjecture). Meanwhile, Amazon is building up two channels/advantages (Kindle and Prime) that will more than make up for the lost sales tax advantage.
Why would Amazon want to create an AdKindle?
The signs are clear that ebooks are migrating towards very low prices. Water for Elephants is at #1 and it’s priced at $4.17. There are lots of $1 indie author novels, and quite a few sub-$5 published author novels, in the Top 100. In just a few years we’ve gone from $5 books being considered deals to $1 books being deals.
All along, the premise has been that low-priced Kindles don’t make much profit but ebooks do. What happens if ebooks drop in price to $1 and $3?
Perhaps an AdKindle is a hedge. A device for a world where eReaders are $99 and ebooks are $0.99. It might not be a very far-fetched scenario given the speed with which ebooks are spreading and the rate at which ebook prices are dropping.
The other possibility is that Amazon knows, and it should be pretty obvious, that Google will burn up yet another market to protect search. Google could care less whether ebooks are $0 or $1 or $10 – As long as it owns one more source of content and can channel those readers into Google search and show them ads. The Book Settlement was struck down so one of the two golden pillars is gone – the other is ads in ebooks.
Amazon can’t fight ad-sponsored books with purity – because there will always be a non-trivial number of readers willing to bear ads for a 50% discount. Amazon has to be prepared to sell actual ebooks with ads. Which means that AdKindle and Kindle with Special Offers are necessary releases – a pre-emptive defence against the Destroyer of Profitable Markets.
Where does that leave us readers?
In an unsettling place. Amazon might not have very much choice. In the end it will have no option but to offer -
- Regular Books for $9.99 and $4.99.
- Ad-sponsored Books for $4.99 and $1.99.
AdKindles and Groupon Kindles are a given. AdKindles to preserve Amazon’s place in selling books and Groupon Kindles to preserve Amazon’s place in retail.
Hopefully, there will always be pure Kindles and pure books available.
Filed under: kindle 4 | Tagged: amazon vs google, kindle strategy | 14 Comments »