Technology Management Insights

Arun Rao

Understanding the Kindle

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When Jeff Bezos introduced the Kindle Fire on Sept-28 2011, he was very clear... he mentioned that he's not introducing just another tablet, but adding to an ever increasing number of ways you can consume your Amazon content. Kindles are (as Bezos put it) an "end-to-end service" - not just a stand-alone product. So when someone compares it with other "tablet devices" out there, I believe they miss the point because unlike, say, the Samsung Galaxy Tab or the Motorola Xoom, all Kindles have one distinguishing characteristic: they are connected to Amazon's dynamic content delivery engine (i.e. their web-site)... and to get the most out of the device, you "consume" content sold by Amazon.

With a Kindle, you aren't buying a device that you configure, load up with software like you would say, a laptop... you are buying a pre-configured content-delivery vehicle that (with the Fire in the line-up) comes pre-loaded with software and can also do other things like emails and browsing.

History

Here's a little look-back: In 2007, when it first came out, there was the plain-old Kindle reader, which could do little more than consume printed content (books and the like). Over the past 4 years, new devices have allowed Amazon users to consume multimedia content (music, audio books) and now, with Kindle Fire, Amazon customers can easily buy, rent and view video content as well as games - in addition to all that the older Kindles allowed them to do. Today, there's even a Kindle for people who want to pay $30 less - but don't mind a few paid advertisements.

In a way, Kindle is to Amazon what newsprint is to a newspaper company... In both cases, you basically buy the content - the transport layer (whether electronic or paper) is just a necessary "platform".

And the myriad of software clients available today to consume Amazon's content (on all kinds of devices and operating systems) is further evidence that Bezos' focus is the margin he makes selling eBooks, videos, music and other "soft" content - not so much in the hardware margins.

Comparing Business Model

Apple's iPad - with its integration with the iTunes - is closest in functionality, business model and end-to-end service delivery to Amazon's Kindle - and it also has additional consumer-centric features like a camera which allows it to be a communication device as well. And Apple has the first-mover advantage. But all that comes at a higher price for the consumer - Apple makes about 30% gross margin on the device, while Amazon will likely lose $50 on each Kindle Fire.

The only other viable competitors to these two giants are Barnes & Noble's Nook and Sony's eReader - both have a content delivery mechanism, online stores and good devices. But these alternatives have one major problem... content (or lack thereof). Additionally, Sony has decided to price its new (very well reviewed) device at a price comparable to the iPad2 - and that combination (high prices and little content) spells trouble for Sony. A similar (not entirely comparable) story played out with HP's (equally well reviewed) tablet device... high price with no content equals no takers!

Amazon also introduced the Cloud storage service - and integrated it with the Kindle Fire. This is also a very important distinction because that convenience provides customers the peace of mind to know that their purchases are always stored online - and will not be lost with a device crash! When you read a book, WhisperSync automatically saves your page online - so you can pick up on a different device where you left off... I must point out that this "fully integrated" offering was released to the public before Apple's iCloud is online and generally available.

Bottomline:

Many people I have spoken with are looking to switch from a laptop to a tablet. It is not only more convenient to carry around, but also is increasingly more functional. And until recently, they didn't really have a lot of "end-to-end service" choices (despite a lot of tablets on the market). With Amazon's Kindle Fire, they now have an affordable and functional alternative to the Apple iPad.

If the Google / Motorola collaboration comes out with a viable third alternative, they will have to re-think not only their business model (of selling just a device versus a service), but also learn from the HP experience, take a page from Amazon's Kindle strategy-book, and think seriously about pricing and positioning.

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Technology Management Insights blog that helps IT executives cut through the hype and understand how to apply new and emerging technology solutions to get the best business value in a "just enough" IT environment.

Arun Rao

Arun Rao is an IT executive based in the SF Bay Area with extensive experience in the design and delivery of cost-effective and high-performance solutions in support of rapid growth in local and international markets.

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