Kindle is Going to Burn Down the Amazon

November 27, 2007 at 9:46 pm 6 comments

There’s a new e-book reader coming out from Amazon called “Kindle.” It has a standard QWERTY keyboard, a good sized screen, and probably pretty good for what it is. Yet, I’m not sold that this is going to work. Yes, Amazon sold-out in the first week, but if I had a limited run, a major press-conference, a Newsweek article, one of the most visited websites on the internet and every newspaper and tech blog in the country covering my product, I’d sell out too.

E-books and readers have been around for about 10 years. The reason that they never caught on is because no one was able to supply the format with enough titles to make it interesting. But, even now with enough books to read, there is going to be a problem with ever making a real dent in the market.

Top 4 reasons Kindle isn’t going to gain significant market share:

    • It’s $400.
    • It’s a single-use device – a.k.a. The Espresso Machine Prinicple
    • Limited ownership
    • Necessity is the mother of invention.

        “It’s $400.”

        Kindle costs more than an iPod, more than those price swelled-iPod docks, more than 50 used books, more than an iPhone, more than 9 shares of Microsoft, more than $100 magazines, and more than 20 zillion RSS feeds. What compels me, an avid reader, to plunk down $400 for this thing? The device is far too expensive for the average consumer, which could delay the early adopter phase.

        Kindle costs more than a laptop (a fair comparison, since it is essentially a tiny, walled-garden computer) and almost 20-times the price of today’s #1 fiction best-seller, Stone Cold.

        There are a lot of books that I want to read, but I am not willing to do the “how- many- books- do-I- have- to- buy?” math in order to see an ROI on some of the money I’ve invested in the e-book reader.

        In addition to the initial cost, the user still has to pay for the content. Books cost about $9.99, magazines $1.99-$2.99/month, newspapers $9.99-$14.99/month, and RSS feeds $0.99/month.

        I have no problem paying for content, but a previously free blog is now $0.99/month. That would mean I’d owe Amazon about $81 for last month if you transferred all my feeds to the Kindle (and the author would see $0). Whether or not this

        “It’s a single-use device – a.k.a. The Espresso Machine Prinicple

        Does it play audio? (No.) Does it play video? (No.) Is it in color? (Nope.) Can I write on the e-page? (Nyet.)

        With a nice black and white display, full QWERTY keyboard, and a connection to Sprint’s network, this device could do a lot. The technology is there

        I’m not saying that books are boring and that you need video, or full internet browsing, or anything but e-books, in order to compete, but since Amazon made a device that could take the reading experience to the next level, it is a little disappointing that they didn’t.

        Almost every who truly likes coffee, lattes, and cappuccinos would love to have an espresso machine (after all, a latte is simply espresso and steamed milk). The problem is that a good espresso machine is expensive, single-use, hard-to-master, and usually takes up valuable real estate on the counter.

        Unless you drink espresso every day, is something like that worth the cost and effort?

        “Limited ownership”

        If I buy a book, I own the book. When I’m done, I can give it away for free or sell it to my local bookstore. If I buy an Amazon e-book, I don’t own it, I can’t give it away, and I can’t sell it. It is on a server and I can’t store it anywhere, including my personal computer.

        Yes, this is similar to the digital music model, except that I can use alternate legal means achieve my ends, as opposed to be being simply impossible. With digital music, it’s up to me to make a decision on how and where to get my music. With the Amazon e-books, it is either Amazon or nothing.

        (Update: DiveIntoMark.org has a couple Jeff Bezos, George Orwell, and Kindle EULA quotes. Oh the irony.)

        (Update: Tom Merritt said on Buzz Out Loud that there will never be another device like the phone – a device that is open to anyone no matter what the carrier/provider. Everything is exclusive or limited. I don’t want to agree with him but think that we may be heading there.)

        “No one’s saying that they need a better way to read books.”

        I like books. I like having a tall stack on my shelves. (I’m a little bit of a show-off.) The only place where I would have loved an e-reader would have been in college when my Complete Works of Shakespeare text as about 2,500 pages and 10 lbs. But then again… I would have been able to write on the pages.

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        6 Comments Add your own

        • 1. mpuhala  |  November 27, 2007 at 11:36 pm

          I agree with you that $400 bills is a lot to swallow. I would be much more agreeable at a $300 price point.

          However, I think you are missing the point of why this device will be successful (relatively). The Kindle is not intended to be price justified through a break-even price. It’s a device that offers convenience and simplicity that has not yet been offered. For that convenience, you pay a price (a fairly hefty one at that). This is a luxury item, not a book reader for the masses.

          Will the Kindle be as successful as the iPod? — most certainly not. Will it be a success for Amazon? — I think so. If they keep making improvements, and the price will eventually fall, I believe that the sales will follow.

          I ordered a Kindle because I think it makes it easier to buy books when I am on the road and I want to have fresh reading material on me without lugging around multiple books that weigh me down. I think this device will most likely catch on with the business traveller first — and not casual readers who buy one book every two or three months.

          Reply
        • 2. bgfeener  |  November 28, 2007 at 3:34 am

          Mphuala –

          I agree with you that the $300 would be great, but what’s stopping Amazon to offer this device for $250? Or $200? I understand we’re all trying to make a buck, but when the iPhone is reportedly “only” $280 to produce, I can’t imagine that after marketing, employee labor, and R&D (it’s a new device, but not the first of its kind), I think that Amazon could offer this for a lower price. When you consider the $9.99 ebook, $1.99/month magazines, $0.99/month RSS, and $0.10/email, there’s a lot of extra money that you have to put into the device on top of the initial investment.

          The device will have staying power. For all the faults I’ve identified, it will make life easier for people who read a lot of books.

          I simply don’t agree with the current business model where I feel like they’re charging a lot, and then nickel and diming for content. You’re right – this is a luxury item. And I’m a brother of the Broke Phi Broke Fraternity.

          Reference:
          $280 Price Point: http://www.techspot.com/news/24122-isuppli-claims-iphone-profit-margin-is-50.html

          Broke Phi Broke

          Reply
        • 3. mpuhala  |  November 28, 2007 at 4:57 am

          The proverbial early adopter tax sets in here. If the Kindle really did spend three years in research & development as Amazon claims, they have spent millions to launch this product. Let’s do some simple math based on conservative estimates:

          – Amazon spends $4 million to develop the Kindle (maybe they spent $2M, maybe $10M) and another $1M to market the device. All in at $5 million (again, conservative)

          – Conservatively, let’s say that the Kindle only costs $100 to produce.

          – At a $200 price point, they need to sell roughly 50,000 units to break even. At a $400 price point, it will take approximately 17,000 units to break even.

          Regarding the book price, the author/publisher needs to get paid — probably near 70% as there is next to no cost to distribute the book.

          As more units gets sold, and orders go up, the price to produce them goes down and so will the price….

          As with most large-scale product launches, the company is going to be loosing money for the first couple of years. Especially considering there are no monthly/annual subscription rates and they are having to pay Sprint for network usage.

          Reply
        • 4. bgfeener  |  November 29, 2007 at 7:06 pm

          I can’t really argue either way about the real cost of the R&D, but you’re probably low with the $5m.

          If Amazon was really so concerned about this unit selling less than 100K units, why would they spend the time and effort to digitize EVERYTHING people are putting out, and get Sprint on board, and invest in the production facilities, etc? I think that they were projecting this to be REALLY big and for, eventually, everyone (though, maybe not in this version).

          I have no problem with paying the author. Although, i do have a problem paying for email and RSS. I don’t have to pay for email anywhere, except when cell-phone carriers are involved (which is suspicious now that I think about it) and I never have to pay for RSS. Honestly, is my commentary worth $0.99 a month? HELLS NO! I make no money off this hobby and neither should Amazon.

          Anywho, you make a ton of salient and valid points and I appreciate the comments. Thanks for reading.

          Aloha,
          B

          Reply
        • 5. mpuhala  |  November 30, 2007 at 5:32 pm

          It seems to me that any ‘free’ content that Amazon is sending to the device, they are looking to recoup in wireless fees. When you buy books, newspapers and magazines, the wireless cost is absorbed by Amazon. However, blogs and documents that are being sent over a wireless network that you are not having to pay monthly or annual subscription fees to, is the issue.

          I agree with you that $5M is a low figure. I also agree with you that Amazon should not profit from your blog or anyone else’s, but I don’t think that is what is happening.

          Reply
        • 6. bgfeener  |  November 30, 2007 at 7:31 pm

          I would need at least a couple of primary sources to make a qualified judgment about the cost of wireless data transfer, but if I can a voice calls for free on nights and weekends, make “unlimited” data transfers over the Verizon Wireless network, and transfer 1500 text messages outside of the VZW network for $10, there has to be some sort of model that can pay for that Sprint connectivity without nickle-and-diming the data transfers. What about taking a bigger piece from the $9.99 book/ $1.99 magazine pies?

          The problem I have with it is in part the cost, but mostly the customer perception of value added. Does $2.00 for email really put a hurting on my wallet? No, but it would make me more relaxed when I’m sending that email to my device and ultimately happier with the product.

          (Of course, if it’s too easy, the device becomes a portable email-device and that’s not going to fly with Sprint.)

          Reply

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