Re: Re: future of the Amazon Kindle

On Tue, 22 Apr 2008, Kent S. Larsen II wrote:

> Didn't we decide at one point that the Kindle might cost Amazon 
> $100-$150 each to manufacture? (I can't remember and I'm too 
> lazy to look it up). I think we also decided that the total 
> investment might be in the $10 million to possibly $50 million 
> range.

That certainly wasn't in THIS forum! You suggested that the cost 
might be about 30% to 40% of retail -- which, if this was a 
normal product, would make sense.

But this isn't quite a normal product. Amazon, like everyone else 
offering a "device-now, content-later" platform, can sell a 
platform at a much lower margin, right up to selling at a loss. 
Then they make up the difference on a slice of the content price.

This is where the rub lies -- people seem to have accepted that 
there can be three or more distinct video game platforms, and 
that content (games) doesn't cross over between them. For some 
purchasers (parents), the fact that content doesn't cross over 
is actually a feature.

Books are not games, though. The good ones have significantly 
longer lifetimes, and the price is significantly lower per unit. 
I can buy 3 brand new paper backs for the price of a recent used 
videogame for the PS2! That suggests that to start with, there is 
less money on the table.

Even Amazon will likely find that there are categories of 
content it does not want to get into, but that people want to 
buy. At that point, the platform must readily support outside 
sellers of content, who are not paying a slice of the price to 
Amazon per copy sold. (Correct me here, but as I recall the PDF 
capabilities of the Kindle have not been the subject of acclaim.)

Given all the extra value that is expected to fall to Amazon 
from a purchaser of this device, I could easily see them selling 
it at a loss. But that means this device must earn its keep. 
Given the radio link, each and every Kindle costs Amazon 
something every single month.

I am quite sure that Amazon is paying very close attention to 
both the device costs, the monthly costs, and the channel profit 
bump. We simply won't get to see those numbers - but it's by 
those numbers that the Kindle will live or die.

If the profit is high, the device lives no matter what. At lower 
profit levels, costs must be low enough to cover everything. If 
profits are too low to cover monthly costs, then the category of 
remote capability is likely gone.

Funny enough - I don't think Amazon wants the actual device cost 
(not the price) to drop. If someone can build a competitive 
device for a cost of $50, then they can sell it for $150 and 
cover all their expenses on the sale. Such a device need not be 
locked at all.

The range of possible outcomes is still very wide, but right now, 
I see the possibility of the Kindle succeeding for Amazon, but 
without the category of ebooks taking off overall. The more the 
category takes off, the less likely the Kindle is the way to go.


:: chris smith ::::::::::::::::::::::::::::::::::::::::::::::::::
:: nihil tam munitum quod non expugnari pecuna possit - cicero ::

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