Search

Amazon Needs to Look Past the Kindle and Focus on the Bigger Prize (AMZN)

By: , dated June 23rd, 2010
Amazon (AMZN)

When the iPad was announced earlier this year, one of the first reactions most observers had was that Amazon’s Kindle bookreader had been put on the fast road to extinction. The iPad, for all its flaws, offers a much more comprehensive entertainment and media consumption experience while the Kindle is a restrictive single-purpose device. Why buy a Kindle for $259 when you can spend $499 and buy what is essentially a mini-computer in the iPad? As predicted, consumers are drifting away from the Kindle, the clearest indication of which we received yesterday when Amazon cut its price from $259 to $189. Should Amazon throw in the towel on the Kindle and move on?

Daily Chart

If you are not able to see the chart, your email client probably does not support javascript. To view it, please click here

Stock Analysis

Kindle is still a better book reader than the iPad (e.g. its e-ink technology makes it much easier to read in daylight) but the iPad is still a first generation device and Apple is surely going to make tremendous improvements to it over the next year (e.g. maybe by using transflective LCD displays that do better in sunlight). Therefore, it’s almost a sure thing that in a year or two down the road, the iPad will offer a better reading experience than the Kindle. Apple is a technology company; they are experts at pushing boundaries and improving usability. Amazon is a retailer at heart and doesn’t have quite that same culture, expertise and bent of mind.

So what should Amazon do next? They should probably continue to back off and instead of devoting additional R&D resources, cede the e-reader hardware space to Apple. It’s probably a good idea to cut the price of the Kindle as they have begun to do. Price is the only way Amazon can compete with Apple. Eventually, the Kindle will probably retail for something pretty close to its manufacturing cost (e.g. $100). Either way, the Kindle should no longer be a priority for Amazon. The Kindle did its job of raising awareness for e-books and now it has run its course. There is no way Amazon can design a better hardware product than the iPad and it shouldn’t waste its time trying.

Instead, Amazon should focus on exploiting its dominance and expertise in the retail market. Apple can control the hardware but Amazon should innovate in the areas of e-book retailing (e.g. experiment with different pricing models) and in the e-books themselves (e.g. right now e-books are just glorified PDF files, so there are probably ways to improve the file format of e-books to bring them closer to the experience of reading a traditional hardcover). There is a lot of money to be made in the sale of e-books and as more and more people appreciate the convenience of reading books electronically, this market is only going to increase.

Amazon is one of the best retailers on the planet and they need to exploit that by squeezing Apple out of the e-book retail market (e.g. offering publishers more attractive terms, being better at predicting what books consumers will prefer based on their past choices). Initially, Apple is going to try to cut Amazon out of the e-book ecosphere with the iPad by fostering a closed environment, but that is never a long-term viable strategy and sooner or later the retailer offering the best and widest collection of e-books packaged in a superior user experience will come out ahead, regardless of who controls the hardware. That is a battle Amazon has a great shot at winning.

Other Amazon Commentary:

More Stocks in the News:

VN:F [1.9.17_1161]
Rating: 1.9/5 (12 votes cast)
Amazon Needs to Look Past the Kindle and Focus on the Bigger Prize (AMZN), 1.9 out of 5 based on 12 ratings

Other relevant articles you may like

This article was brought to you by the InvestorGuide Staff Writers and Editors. If you're interested in writing for us, please read our Write for InvestorGuide.com page. If you're interested in becoming a content partner, please read about our content partner program.

Copyrighted by InvestorGuide.com. All rights reserved.

4 Responses to “Amazon Needs to Look Past the Kindle and Focus on the Bigger Prize (AMZN)”

  1. BobW says:

    What, no razor vs blades analogy? Perhaps that’s too 20th century. OK, iPod vs iTunes.

    I suggest that the electronic book file format should not aim to match the hardcover experience, but to maximize the hypertext reading experience.

    A properly designed and implemented hypertext is much better.

    VA:F [1.9.17_1161]
    Rating: 0.0/5 (0 votes cast)
  2. Steve says:

    I for one (and I have many friends and associates that feel the same) hope that Amazon continues to produce and support the Kindle. I do not want an iPad. I do want a small, light, easy to use, view and hold eReader – which the iPad, and notebooks and netbooks, are not.

    VA:F [1.9.17_1161]
    Rating: 0.0/5 (0 votes cast)
  3. californiaxfresh says:

    People looking to buy ebook readers and that only, will go for the kindle or the nook, while most others will lunge towards the ipad. If the iPad 2nd gen has a transflective display on the back of the iPad, no one will further buy ebok readers

    VA:F [1.9.17_1161]
    Rating: 0.0/5 (0 votes cast)
  4. Kirk says:

    It still floors me when people compare the Kindle or Nook to an iPad. The primary purpose of the Kindle is reading that is easy on the eyes using e-ink. You can read all day without it bothering your eyes. People who buy an iPad try to use it for reading, but i don’t think that is why you would by one. The backlit screen will mess with your vision if you try and read for any length of time. For $189 readers will still purchase Kindle or the $149 Nook. It is not an iPad, but it is and will continue to be marketed to readers….and it is dirt cheap compared to an iPad!

    VA:F [1.9.17_1161]
    Rating: 0.0/5 (0 votes cast)

Leave a Reply