More rumors suggest free Kindles for Prime subscribers may be in the offing

free[1]More rumors are flying around about Amazon giving away Kindle e-readers for free, probably to Prime members. This time CNET’s Crave blog picks up on it. Though it doesn’t mention the price point chart I brought up a few days ago, it does link to a GeekWire interview with a venture capitalist who used to be on the Kindle team at Amazon, which in turn links to a CNN piece which mentions it.

Taken together, the pieces make some good arguments. The Kindles have always been loss leaders—Amazon makes its money off the e-books (especially now that agency pricing is forcing Amazon to take a 30% cut of every e-book rather than treating the e-books as loss leaders too). That’s why Amazon has been so good about getting a Kindle reader app onto every major mobile platform. Kindle owners tend to buy more books than non-owners, and getting more Kindles into more people’s hands could accelerate the growth of the overall e-book market.

The synergy would also work the other way around: Amazon’s highly-profitable Prime program would become attractive to even more consumers, leading more of them to shift their purchasing habits to buy more physical goods from Amazon, as well as e-books.

Some people have been a bit skeptical of the idea, though. They point out that not every Prime member would necessarily want a Kindle—they subscribed to get no-cost 2-day shipping on their orders, and Kindle e-books aren’t shipped at all. On the other hand, it’s hard to say no to “free”, and it’s a demonstrated fact that often people don’t care for gadgets they don’t have until they get them, then after they use them they discover they can’t do without them. (My parents and cell phones, for example.)

Even if the free Kindle recipients turn around and eBay them or give them to friends or relatives, someone ends up with that extra Kindle, and it still grows the market and gives Amazon additional market share. And who knows? Perhaps Barnes & Noble might just follow suit. And if that’s the case, the e-reader market is going to get that much harder for smaller companies to break even in.

9 Comments on More rumors suggest free Kindles for Prime subscribers may be in the offing

  1. The “free Kindle for Prime subscribers” actually makes much more sense as a program to promote Prime, rather than a program to promote the Kindle. I’m not sure why, if Amazon doesn’t wish to promote the Kindle, why they wouldn’t simply reduce the price of the WiFi version? It would probably receive a lot of press, and lead to a lot of sales from people clearly interested in ebooks, rather than Prime subscribers, who may or may not be interested, or may already own one.

    It would be more interesting to read articles like “The $100 Kindle?” or “The $80 Kindle,” which might lead us into the even more pie-in-the-sky “the $50 Kindle,” or speculation about at what price the e-reader market will become saturated.

    Also, re: companies breaking into the e-reader market. Outside of niche market and terribly shoddy LCD e-readers, is anyone even trying anymore in the US?

  2. Felix Torres // March 9, 2011 at 7:40 am //

    Can Amazon give Kindles away? Yes.
    Will they? Most likely not.
    A much more likely approach is Amazon getting into the book club business as that would not only give them an expansion of the Kindle installed base but also added leverage with publishers.
    Talk of free Kindles is a good way to while away a few idle moments, though. 😉

  3. Brian/AnemicOak // March 9, 2011 at 9:42 am //

    Free? Maybe, but I’d think a simple discount for Prime members would be more likely or as Felix mentions some kind of club (perhaps on the Audible model or x number of credits for x amount of $$$).

  4. Stating “The Kindles have always been loss leaders” is not factually correct. A loss leader is selling an item at or below retail cost in order to entice customers into a store who almost certainly will buy something else at regular profit levels.

    If you believe this argument — selling below cost — it’s pretty hard to explain why many manufacturers can sell (and prosper at it) their devices at similar price points. In additional, several manufacturers sell their devices through 3rd party dealers such as Staples, Wal-Mart and Borders; those 3rd party retailers get 20 to 40% discounts from the retail price.

    Businesses do not stay in business giving away goods costing $150 each on the expectation that eventually they’ll recoup their costs. To recover $150, Amazon would need to sell *every* free recipient 50 $9.99 NYTimes best-sellers (making $3 each commission); at that point, the 51st sale would generate “profit”. That model won’t fly.

  5. Brian/AnemicOak // March 9, 2011 at 11:04 am //

    Yes, I don’t know where the loss leader thing is coming from. Everything I’ve seen shows Amazon makes money on every Kindle sold.

  6. The notion that the Kindle must be a loss-leader seems to have started with people who don’t like Amazon/don’t like the Kindle/prefer another e-reading device. It provides a comforting explanation for Amazon’s domination of the market – they’re engaging in the somewhat dubious act of dumping them below cost in order to sucker in the naive, unlike the truly intelligent and perceptive who cling to the (Sony, Kobo, Apple, whatever).

  7. Felix Torres // March 9, 2011 at 12:49 pm //

    The folks dreaming of FREE! Kindles! aren’t really thinking the concept through.
    Sure, the idea of a Kindle3 WiFi, as it now ships, (A $139 product!) for free, would be hard to turn down. But the reality isn’t quite what the buzz makes it out to be.

    Pro:
    First, the reality is Free Kindles exist already.
    Banks and other businesses are giving Kindles away as enticements to new customers.
    Odds are, they get them at cost from Amazon. Not at list or anything like it.

    Second, best guesses are K3 WiFi build cost runs US$80-100, probably closer to the low-end than the high end of that of that range. Plenty of room for retailers and Amazon to make money at $139, plenty of room to make money of ebook sales from a cost-reduced Kindle later this year.

    Third, a Free! Kindle! doesn’t have to be a free Kindle 3 WiFi as we know it.
    Kindle isn’t a single product; it’s an ecosystem and a brand. A Free! Kindle! could easily be a different creature built to different specs. If *I* were designing such a beast, I could easily trim costs by a lot and make sure Amazon maximizes the follow-up ebook sales.
    First thing that goes is the USB port–no side-loading.
    Second, the case can be replaced by cheaper plastic.
    Third, if Amazon is going to give the things away by the million they can probably demand and receive really good pricing on last-gen screen-tech; Vizplex, SiPix, or even monochrome reflective LCD.
    Fourth, make it clear there will be no firmware upgrades and use less Flash Storage, say 1GB instead of 4GB. Use cheaper and slower CPUs.
    Fifth, if they really wanted to keep freeloaders at bay: since every Kindle has a unique serial number and Amazon’s website can be set for variable pricing, the Free! Kindle! woud see zero (or very few) free ebooks but rather a $0.49-$0.99 price for even the PD books paying customers see as freebies. (Yes, I’m evil. So? ;))

    Build cost can easily be driven into the $40-50 range, resulting in a product that won’t cannibalize Kindle 3 sales and be useless to freeloaders.
    So, yes; Amazon can easily make money off a Free! Kindle!

    Con:
    Lawsuits.
    Possible government action.
    Channel conflict; unhappy retailers.
    Unhappy freeloaders bad-mouthing Amazon on the internet.

    My take is that while Amazon *can* make money off a Free! Kindle! program they have more to gain by a lower-volume, more targetted effort using “Free” Kindles in a book club contract model.

    Consider this particular scenario:
    An honest to goodness Kindle 3 Wifi “free” when joining a brand-spanking new Amazon Book Club, one of twelve genre-based clubs; SF, Fantasy, Urban Fantasy, Young adult, Romance, Biography, History, Current Affairs, Science, Mystery, Suspense/Horror, Action/Adventure.
    The deal?
    A “Free” Kindle with 12 Free ebooks from the genre of choice (coming from Amazons stock of free promo ebooks) in return for a two year subscription to the matching book club. Every month, you either buy the Agency-Priced New Release of the Month or its equivalent from one of the other clubs.
    24 books times three dollars works out to $72 or about the build cost of the “Free” Kindle WiFi so Amazon just breaks even, at worst.
    The profit for Amazon comes in three areas:

    1- added buys beyond the monthly commitment.
    2- locking up the customers for the longer haul
    3- kingmaker market power

    It is the last one that really matters.
    Anybody remember the Oprah effect? The big spike in sales that boosted the books Oprah selected for *her* book club?

    How many customers would sign up for the Amazon ebook clubs if offered “Free” Kindles? 10,000? 100,000? A million?
    How many existing Kindle owners would sign up for a similar one-year subscription built around a bundle of 12 free ebooks?
    What kind of Leverage would Amazon muster if they could guarantee 100,000 upfront sales to the book of their choice? Even if Amazon actually lost money, say $20, on each of a million “Free” Kindles that kind of money is easily worth it for the market power to be able to mint ebook bestsellers at will. Especially if all the monthly selections are all Amazon Exclusives.

    Do we *really* want to see this *added* weapon in Amazon’s competitive arsenal?

    As the saying goes: “Be careful what you wish for. You might get it.”

  8. I’m still not convinced Amazon will do this. Only a year ago everyone was talking about how they lose money on ebooks & make the most profit on selling Kindles. Of course, that was before they drastically reduced Kindle prices.

    However, I still don’t see it happening. Even with an Amazon Prime membership at $79/year, would it cover the cost of a Kindle? Cell phones are frequently given away for free, but users have to sign a 2-year contract with the carrier with monthly bills of $50+ dollars.

    In any case, I hope I’m wrong. I am an Amazon Prime member and I’d love to own a Kindle (I read a lot of ebooks on my iPad with the Kindle app). :-)

  9. As a Kindle owner, I would NEVER purchase another ebook from Amazon again it they started giving the Kindles away for free. Of course the prices would rise, even more than they recently have,(some of the e books for Kindle cost more than the paper books…outrageous) and the “freebies” would be history.
    The Kindle may be a good product but it offers very little……no e-pub!, only 2 week loaners–one time only! limited loaner books very limited, (like never for the books you want to borrow or lend). etc. etc.
    I will put my Kindle in a drawer, forever and buy an ereader that will, at least have epub.

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