There is a fair amount of speculation that Amazon is preparing a second iteration of its innovative Kindle, eBook reader. Maybe it will have a larger form factor. Maybe it will be targeting the college textbook market. Michael Arrington over at TechCrunch wonders whether Amazon would not be best advised to open up the spec and invite other hardware manufacturers to deliver better implementations. He is suggesting that by keeping the hardware proprietary Amazon may be making the same mistake that Apple made vis a vis Microsoft and the Windows O/S. This is an entertaining line of speculation, and of course its not going to happen, but why not? And what does this tell us?
- There should really be no margin in selling eBook readers. They are small lumps of silicon and plastic, the screens are mass produced, and the one that works will be a massive seller. The profit has to be in the service or the digital offerings. Really Amazon should have been pricing Kindles at $99 all along (current official price is $359). They should have been using the free-razor, but pay for the blades strategy. Arrington realises this and suggests that third party manufacturers will be incentivised by "shar(ing) a percentage of net margin generated from downloads with the hardware manufacturers."
- But, please say that again: "Share net margins". I thought that is what Mike said. But can you see Amazon sharing a percentage of net margin generated with anyone? That way people outside Amazon get to know what the net margins on all their digital transactions are. I think they will be offering "net margin shares" to publishers or authors before they start offering them to hardware manufacturers. But dont count on it before Christmas.
- Perhaps the most interesting aspect of the Kindle is its web-connectivity. It gets this through Amazon's deal with Sprint for the EV-DO cellular network. You cant make or receive phone calls with the Kindle but you can download books and to a limited extent you can browse the web. This costs Amazon something (no one knows how much) but it makes buying and downloading new books a cynch. This is its big plus over the Sony eBook. Is Amazon going to underwrite the risk of excessive and costly use of free web browsing by users of third party manufactured devices? The connectivity feature of the Kindle is the key to its success and there is no way that Amazon could give that away to manufacturers of devices that will use it for who knows what. It could well be that this deal that Amazon has with Sprint will be hard to replicate in other markets, and this may explain why they have been so slow to roll the Kindle out in ex-US markets (not even in Canada).
- That is the other reason. Amazon has to have a global strategy before any hardware manufacturer would dream of kloning the Kindle, or before Amazon could invite PC manufacturers or cellphone makers to emulate it. The Chinese market for digital books is going to be a lot bigger than the US market for them.
Amazon have invented the Kindle on the basis that the digital books domain should be a platform, and the manufacturer of the right device for eBooks will own the platform. The big problem with this strategy, and in my view it is going to be a problem for Amazon and its Kindle customers, is that the platform for digital books is the web. Digital books that work well for their readers, need to be accessible from any web device and they need to be able to link seamlessly to any web resource. The Kindle gets this wrong both ways, and the limited but enticing connectivity that the device affords, simply underlines the failing. The Kindle would be better if it were more like the iPhone.