Lower Kindle 3 pricing with Ads. Andrys’ thoughts

$99 would have been more attractive pricing for this IMO (really $50 would be very attractive, but as it’s new ground and they don’t know how well it’ll go over…).

It never made sense to me that Amazon wouldn’t allow custom screen-savers. Now I understand, and I’m sadly disappointed in them.

As Techcrunch notes, Amazon is well aware of the power of the 9. (Heck, they invented $9.99 e-books.) If there’d been any way to get down to that magic number, they probably would have—so apparently the margins are still just too thin. (But maybe by the end of the year.)

What I’m curious about is whether there’s any sort of a “sunset provision” for the ads—that after some period of time the device might be considered “paid for” and stop showing the ads on request.

If this works in boosting sales it will be adopted very quickly by everybody that sellls anything with a screen. If you hate ads the world just got a little bit darker.

@Diane, I doubt this is why there are no custom screen savers as they could have just tweaked the software for the Kindle with Ads, which they’ve done anyway, to not allow them only on that model.

More likely custom screen savers haven’t been added (yet?) because of the added burden it would put on their Kindle support folks, that’s one of the reasons it took them so long to add Collections. Just take a cruise through Amazon’s Kindle support forums to see some of the very basic stuff that they get asked over and over and over again.

Did they check with any publishers or author’s beforehand on this?

If the ads are on the screensaver, that means they’re going IN the books, right?

Think like a publisher for a second. If someone stuck an ad in YOUR book. Wouldn’t you fell entitled to a cut of the profit (remember- I asked you to think like a publisher)?

Backlash to come.

>>If the ads are on the screensaver, that means they’re going IN the books, right?

No. In the articles I have read and looking at Amazon’s announcement I see no indication that the ads are going in the books. When you shut a Kindle down an image comes up. The default images are pictures of authors. (Austen, Woolf, Hemingway, etc…) These images are going to be replaced with ads.

No, the ads aren’t in the books. They are on the Home screen and replace the regular “screen savers” which appear when you’re Kindle is in sleep/standby mode.

willem says:
April 12, 2011 at 3:06 am
If this works in boosting sales it will be adopted very quickly by everybody that sellls anything with a screen. If you hate ads the world just got a little bit darker.

I fear you are right. *sigh*

Contrarian time:
It seems to me that a lot of people here and elsewhere are misreading the announcement of the Kindle with Special Offers (KSO, for short) and misinterpretting what Amazon is doing.

The way I see it, there are three aspects to the KSO:
– It’s a K3 WiFi with a US$25 discount
– It’s an online ad delivery system
– It’s a coupon delivery system

To me, it is the *third* aspect that is most being ignored yet it is the most significant element in the KSO deal.

The KSO is *not* a K3 crippled with screensaver ads, but rather a delivery vehicle for promotional deals. In this it is not terribly different from Groupon or Woot or any of the other delivery vehicles for come-on deal promotions. With the dying of newspapers there is a growing need for alternate delivery vehicles for coupons and other forms of shopper attention grabbers. Most efforts, so far, are focusing on pull advertising through websites or push advertising through spam. KSO offers an opt-in service that brings offers to interested shoppers, for a price. Think of it as a lifetime membership in a buyer’s club; a one-time up-front payment gets you access to a constant stream of savings on future purchases. And you get a very nice ebook reader thrown in upfront to sweeten the deal. Classic Buyer’s Club deal.

In other words, people: KSO is the Free! Kindle! everybody’s been speculating about. Just nicely disguised; instead of bundling the “Free” Kindle with Amazon Prime or a book club deal, they’re bundling it with a Groupon competitor.

Make no mistake, there *is* a market for KSO with educated, price-conscious middle-class families to whom the weekly coupon bundles in the mail aren’t junk but opportunities to save money on stuff they were going to buy anyway. People who’ll actually read the sample deals listed at the Kindle web site and decide the savings from the deals are worth the upfront sign-up cost, just as Costco, Sam’s club, and other paid membership retailers are worth (to them) their annual fees. Just like discount books like these are worth their cost:
http://www.entertainment.com/discount/home.shtml

Just how big this market is something we don’t know yet but odds are, it’s not insignificant.

Why do I say that? Because of the ads. The demographics of these likely KSO customers is the mainstream on american consumers. A highly desirable bullseye on middle-class families. Buick buyers, for starters. And these KSO ads will be going to people not watching TV or surfing the web so they will be going to previously uncovered territory. Tie those ads to deals and companies will *know* they are reaching the right customers which is something newspapers and other mass media can’t guarantee. Its offine web ads, basically.

So, what’s the bottomline?
KSO hit as a total surprise but it is a classic Amazon move; flanking the competition by hitting the market with a “free” Kindle that enrolls customers into a virtual buyer’s club offering ongoing savings at the price of a stream of (fairly) unobtrusive ads. Buyers get a nice reader at a nice price and future savings, advertisers and promo partners get access to a choice demographic and Amazon gets a triple play; they extend the reach of the Kindle ecosystem with (effectively) “free” Kindles in a way nobody can contest, they get a foot in the door in the emerging online coupon-delivery business, *and* they get a toehold in the online ad business which is, ahem, Google’s bread and butter.

Yes, indeed; Google wants to sell ebooks?
Fine. Amazon can deliver online ads. And a lot more precisely targetted to the advertiser’s intended audience.
*This* is competition, people.
“You go after my business, I’ll go after yours.”
To the mattresses.

Things just got a lot more interesting.
And a lot tougher for the hardware-only reader vendors.
“Free” Kindle is here.

Next?
I dunno, but suddenly, an Amazon-branded Android webpad is looking like a natural.
Same deal; one time upfront payment buys access to special deals and the Amazon Appstore. And, maybe, a built-in browser that serves Amazon-supplied ads instead of the Google ads.

Oh, and here’s a final thought: KSO is built off the K3 WiFi. Just with alternate firmware.
There is no reason for that to change when K4 appears. It means Amazon won’t have to firesale K3s when they announce the K4. (Waste not, want not.)

Those folks are clearly playing a different game than the competition. Several different games at once, as a matter of fact. Like a Chessmaster at a promo event…

Anybody still think Amazon is going to vanish in a puff of smoke and brimstone any time soon?

Amazon is at least giving the customer the option to choose.

Myself, I read to escape the clattering that is my life and I don’t want more “noise” on my Kindle.

When I take my K out of her sleeve, the author picture on the screen is like a welcome mat. It lets me know my day is about to get better.

Thankfully, Amazon has left the ads vs. no ads choice up to us.

Felix is right about the nature of this ‘new’ model.

However I see it slightly differently. I see this as a really bold gamble by Amazon, in advance of the inevitable appearance of more and more cheap eReaders and the cross over of the new Tablet format.

Amazon know that the technology of eReaders is becoming standard. Chinese and other manufacturers are likely to start producing good quality eReaders in the coming couple of years. Prices are likely to drop sub 50 dollars.

Amazon needs to suck in as many customers to the Kindle environment as they can, and this is the vehicle for that campaign.

Personally I don’t believe it will work. They will sell quite a few of them but nothing significant. Looking at the response of the public to other products that have attempted this kind of strategy tells me it won’t work.

As Felix describes well, above, this is a powerful advertising trojan horse into the heart of the user. It is an attempt to ‘condition’ readers to advertising so that they can follow it up with more intrusive promotions within and without eBooks. It is an attempt to build a new ecosystem that can be monetised to ‘potentially’ an enormous degree.

Personally I don’t believe it will work. Readers are not that dumb.

@ Felix Torres

A fascinating analysis that rings true. That said I a have a few nitpicks.

Though long believing that an Android tablet from Amazon was a given I’ve been having second thoughts. The main problem I see is that Google and not Amazon controls the Android OS – forget all the talk of ‘open’. With Honeycomb Google is showing clear signs of not just giving it to anyone. Would they to Amazon, and would Amazon be happy not being in control of their own OS? I have my doubts.

An Amazon tablet also pits the company directly against all the hardware only manufacturers – Samsung, Asus, HTC etc. – all of whom hope to be players in the tablet market . The chances of the Amazon App store being preloaded, or even available at all on these tablets, will be much
less likely. Unintentionally Amazon could drive many tablet manufacturers towards Google, and even other retailers such as Walmart. (It is interesting that Apple has refused to allow Amazon to sell the iPad directly, they certainly see Amazon as an enemy).

I also don’t see any reason that the coupon system you described could not be copied fairly quickly, say between Samsung and Walmart. As I said everything with a screen would be fair game.

@Howard: I don’t think Amazon cares overmuch about the amount of KSO’s they sell in the long term. What I’m saying is that the real product in this deal isn’t the reader but the “Amazon Special Offers” service. They’re just using Kindle to ramp up into the coupon business.
(Consider that Google offered up US$6 Billion for Groupon. And was turned down.)
A further example that the coupons/offers themselves are valuable is the various comments floating around hoping Amazon makes them available as an optional App for full-price Kindles.

@Willem: As for other retailers/hardware vendors teaming up to do their own coupon services, sure. The barrier to entry is pretty low. On paper. But there is a hidden catch: any Groupon competitor needs to offer a steady stream of deals to keep customers’ attention. And they’d better be attention grabbers. Amazon (and Walmart) is one of a handful of retailers that can, by itself, supply such a coupon service by itself. They are recruiting external partners but to launch it and build up the critical mass needed to make it valuable to retailers they will be feeding it themselves. That is also why they are pre-announcing by a month; they need to line up enough attention grabbers to build buzz over the first few months. Count on seeing all sorts of people saving more than $114 off the deals in the first month and seeing those reports all over. But the success of the service will depend on being able to offer comparable savings from retail partners six months and a year after launch. And that is hardly guaranteed.
On the Amazon tablet side I’ve been skeptical myself precisely because Amazon can get a lot most?) of the ebook/media/retail sales revenue an Amazon Tablet might generate just by piggybacking off other hardware partners.
However…
1- So far, none of the quality android tablets are selling in high volume, mostly because of pricing
2- Using the deal/ad/content subsidized-hardware model might allow Amazon to bring their private brand tablet in at a price that could generate high sales volume which is something neither Samsung, nor Motorola, nor other iPad wannabes have achieved.
3- An Amazon Tablet need not run Honeycomb or even Android

I’m not saying I’m expecting an Amazon tablet but the business case for one is no longer as flimsy as it was just last week. There just might be a business case for one. Maybe running MeeGo, WebOS, WinMo or a Linux variant of their own, much as the Kindle.

As long as the Honeycomb tablets are priced at iPad prices there is room for a cheaper high quality option; Amazon is one of a few operations that could possibly make money at $299 for a 10in tablet, for example.

This sounds to me like the same advertising strategy employed by PBS and National Geographic (the print magazine): content framed by “a word from our sponsors” at the beginning and end. They make it work by running commercials that appeal to the intellectual vanity of their audience.

Thank you to Troy and Brian for clarifying what the “screensaver” is. I don’t have a Kindle so I wasn’t sure about that function or how it is triggered. It sounds like it only comes on when the device is physically turned off by the user. So, technically, it’s not in the book.

That being said, it may be a distinction without a difference. Regardless of where the ads are placed, publisher’s can argue that nobody would see them if it they weren’t reading ebooks in the first place. Therefore, they are entitled to a cut.

Or at least, they will ACT and FEEL entitled to a cut. At the end of the day; publishers are trying to make money and it doesn’t look like Amazon is giving them any with this deal. I find it hard to believe an entire revenue stream will simply be ceded without a fight.

Publishers get paid whether a book gets read or not and their license terms are not performance dependent, much as they wish they could charge each time the file gets opened.
So whether there are ads in the device that displays them or not, they are entitled to nothing.
That said, I’d love to see them try to sue.
We could start a pool to see how long it takes the judge to laugh them out of court and whether the judge suffers any laughter-induced injuries.

@Felix

Why would the publishers need to sue?

Historically, when the Author’s guild and/or publisher’s have had a beef with Amazon they just pull their books and/or blackball all parties involved. Amazon ends up waffling whether they legally need to or not.

Think about when Amazon tried to fight agency pricing. Or the text-to-speech kerfuffle, the Wylie deal, trying to place the highest bid for Amanda Hocking’s new book, etc. It’s not just Amazon- clever initiatives by libraries and Google have been shut down, too.

But maybe I’m wrong on my central premise- in spite of the fact that the content creators aren’t getting a piece of the pie, noone has cried foul yet.

You know the publishing industry is evil when asking the consumer to sit through new forms of advertising is the only thing in the world of ebooks that DOESN’T trigger complaints from the powers that be.

I believe that some publishers WILL try to get a cut of the profits from Amazon. Just look at the recent fight Time Warner Cable is having with some of their content providers over TWC’s iPad app. (In order to use the app, you have to have TWC as your cable and Internet provider and the app only works on your home network. It basically turns your iPad into an additional, more portable, ‘TV screen’.) I personally don’t think the publishers are entitled to additional profits, but I still see some of them trying.