Amazon's Kindle Is No iPod

A question many are asking regarding Amazon's (AMZN) new Kindle release is, will this move the dial regarding Amazon's stock? I'd argue strongly the answer to this question is no for now.

The obvious comparison is to the Apple (AAPL) iPod, but that's something of a false comparison for a number of reasons. First, the market for reading books and magazine length-articles is shrinking, not growing. Sure, the appetite for online news is huge. But with its Kindle, Amazon is selling to a sunsetting audience rather than a growing one.

Second, the Kindle is not a paradigm shift in the packaging of content. The iPod, essentially, unbundled the CD and allowed people to pick and choose what they wanted and pay on an a la carte basis. The Kindle does no such thing and therefore has less of a growth curve. Equally important, iPod buyers could upload their own pre-existing music collections. The Kindle offers no such convenience.

Lastly, there is cost. While the Kindle prices its offerings at significantly less than what one would pay to purchase these items in print, the tab for a Kindle subscriber could easily run well north of $100 per month between a handful of newspaper subscriptions, a smattering of books, and other additions. In a down economy, that makes the Kindle truly a toy of the affluent rather than a necessity for the masses.

Our Piqqem Sentiment Tracker for the stock shows that Amazon sentiment has almost crossed the line into bear territory, due to Amazon's recent runup (see graphic below). Amazon is certainly doing well with other initiatives such as cloud computing and its online retailing, which had an impressive last quarter. But even with a new and improved Kindle, don't look for Bezos and company to get an iPod response out of this device.

Comments

[Roger Knights:]

For the intermediate term, there's the large-format version for students. That will be a game-changer, allowing them to dispense with heavy, expensive textbooks. And there will be an international version.

And the Kindle has got legs for the long term. It allows authors to sell directly to the public, and to sell short stories and essays a la cart, for a quarter apiece. It will be five years before those trends really come to fruition. But it's good for the company that it is inventing the future.

Feb 10 10:48 AM

[GSlusher:]

Re: Cost
Kindle books actually cost MORE than regular printed books because one cannot sell a Kindle book. Most of the books I buy are used and significantly below the price of new books. When I'm through with them, I can sell them and recoup part of the cost. I couldn't do that with Kindle books.

That issue isn't as serious with iTunes Store music because even used CDs usually cost more than the few tracks that I want cost at the iTunes Store.

Feb 10 02:35 PM

[Roger Knights:]

In time publishers will relent on their current insistence on not discounting their newly published books significantly for the Kindle. That's why it'll take five years for the Kindle to really hit its stride.

In the meantime, many "backlist" books and out-of-print books are as cheap or cheaper for the Kindle than used physical books. There are even lots of free e-books from non-Amazon sources that can be read on the Kindle. Google's deal with publishers to pay them a royalty for their backlist books will make an immense store of books available at low cost for the Kindle, once Google and Amazon work out an arrangement. The current situation is evolving. The trend is in the Kindle's favor.

Feb 10 03:02 PM

[jenny:]

The Kindle will never be an iPod ever. The price of it alone is enough of a deterrent. And to the first comment, I would never read my textbooks on this thing. While textbooks are expensive, I take comfort in knowing that at the end of every quarter I will recover more than half that money back by selling them back. You can't do that with an electronic book. Not to mention there is something about having the physical book that I could never give up. Sentiment was actually extremely bearish at the beginning of this week, quickly ticked up and is now back on it's way down (www.predictwallstreet....). The Kindle alone is not enough to help AMZN from diminishing consumer spending.

Feb 11 01:30 PM

[Alex Salkever:]

Couldn't agree with Jenny more. :)


On Feb 11 01:30 PM jenny wrote:

> The Kindle will never be an iPod ever. The price of it alone is enough
> of a deterrent. And to the first comment, I would never read my textbooks
> on this thing. While textbooks are expensive, I take comfort in knowing
> that at the end of every quarter I will recover more than half that
> money back by selling them back. You can't do that with an electronic
> book. Not to mention there is something about having the physical
> book that I could never give up. Sentiment was actually extremely
> bearish at the beginning of this week, quickly ticked up and is now
> back on it's way down (www.predictwallstreet....).
> The Kindle alone is not enough to help AMZN from diminishing consumer
> spending.

Feb 13 03:11 AM