Amazon came out with their much talked about e-book reader – Kindle. The device is no doubt impressive, but it is $399. To place it one way, well if you can buy a music player for this much (remember iPod early days?), why not an e-book reader? This is fair, and yes, Kindle will get its share of early adopters. But what Amazon must be wanting is to get this reader in as many hands as possible so that it can build and sell its exclusive library of e-books. I think it will be really hard for the company to get deep penetration with the reader if it is sold with this price tag. So what are the alternatives?
Well one alternative is to subsidize the reader and sell it at a loss with the hope to make it up with e-book sales. This is a time tested strategy used by everyone from printer manufactures, betting on cartridges, to gaming console manufactures, developing market for the video games. Thought this might not work that well for Amazon, because Amazon is selling e-books for $9.99, and this includes royalty costs for the publisher/writer and transfer cost for the wireless service provider. So it is very much possible that the lion share of Amazon profits are coming from selling the Kindle hardware, and not the e-books.
But there is another, much compelling and hopefully much more successful alternative. That is to make Kindle adware-able. Adware is the growing source of subsidizing cost of many things online, be it news, search or communication applications. So why not an e-book reader? Kindle has wireless access powered by Whispernet (runs on Sprint network in USA, and by other cellphone providers globally as and when Amazon takes it to global markets.) Amazon uses this wireless access to download e-books, newspapers, and even wikipedia articles on customers’ Kindle device. At the same time, it is very much possible for it to download advertisements on the device. Amazon has an added benefit here. It can very well serve contextual or location based advertisements to make them more effective for the customers and compelling for the advertisers. I believe customers won’t mind seeing advertisements on bottom corner of their reading screen every ones in a while if they get the Kindle for substantially low price, or may be for free. Amazon can of course use its creativity to make ads as less obtrusive as possible.
Amazon can make this adware enabled Kindle optional. They can sell a premium version of the device for the existing price tag, which will have no ads, and sell an adware version of device for the ones willing to go for it. Even if Amazon is making its money just by selling the device, I believe it will be an incredible business opportunity for Amazon to try an adware based Kindle, as it will be a win-win for both the customers and the company.