Re: Re: future of the Amazon Kindle

From: "Kent S. Larsen II"
> At 7:15 AM -0400 4/23/08, Chris Smith wrote:
>>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!
>
> No, I found what I was refering to -- my own speculation from 
> December 14th (so I guess that makes it less valid, in all 
> likelihood).
>

........
>>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 understand your point that Amazon could logically choose to 
> sell the Kindle at a loss.
.......
>
>>
>>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.
..........
>
> I agree that Amazon is paying close attention to the numbers, 
> the real question is probably unanswerable -- how much does the 
> Kindle need to sell for Amazon to break even each month?
>
> Two things seem likely in this regard:
>
> * Amazon's break even volume is probably quite low. I could see 
> its monthly break even at just 10,000 ebooks sold each month or 
> perhaps even less, assuming that it is paying by the amount of 
> bandwidth used and that the dedicated staff for the Kindle 
> project are few.
>
> * Amazon's rhetoric about the project has sounded very long 
> term. I think Bezos see this as the way books need to develop 
> in the long run, and he wants to have a product that meets the 
> long-term need. If I'm right, then Amazon may be willing to 
> take modest losses (say a few to $10 million a year) on the 
> Kindle project to let the market develop.
>
> We'll see.
>
>
>
...........
>
>>
>>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 
>>::
>>
>
>
> Now your last statement is a very interesting claim, if one 
> that doesn't have anything to do with the rest of your posts on 
> this thread.
>
> I'm not sure I think that its true, simply because of Amazon's 
> dominant presence in the book market. Even if a non-DRM reader 
> comes along, content is still king. And Amazon either has the 
> content, or has the connections to make sure it has the content 
> to sell. I don't see how that will change in such a way that 
> the Kindle isn't a widely used platform for reading ebooks.
>
> Convince me that I'm wrong!
>
> Kent
>

I've hesitated to join in this discussion which has centred, 
since the kindle emerged, on the technical and usability issues. 
On the question of business decision making I would be surprised 
if there were not a projected loss of at least $250m for 5 
years - for a company of Amazon's size that is a chicken-feed sum 
if it  sees potential for a big market, and a big share of that 
market, later.

Any repeat publishing venture, such as magazines, that wants to 
enter a large existing market normally projects 18 months to two 
years to reach break even.   The kindle venture has interesting 
parallels.

While hardware and distribution costing would be  assessable - as 
Kent and Chris show - by inference and informed guesswork, it is 
the monitoring and researching that is probably swallowing the 
bigger part of the costs.   I suspect this is the start of Amazon 
testing every new or newish trend.   That way, when anything 
really takes off, it is there, ready to profit.

The risk of it becoming dominating enough to push all costs back 
up to traditional book trade levels is one that should be borne 
in mind in any discussion of Amazon.

Joseph Harris 


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