Something Huge Is Happening with Amazon

This post is longer than usual because we need to talk about Amazon (AMZN) and my thesis that this company is on the verge of something huge and game changing (the stock action is starting to indicate it too I believe). I can now envision a day when we read most newspapers, magazines and books on an electronic /wireless device. In this case... Amazon's Kindle.

First off, most people want (and need) the mobility of reading books, magazines, and papers away from their computer..so this stuff won't go online. We read books, magazines and papers everywhere...planes, trains, parks, beaches, bed, bathroom, classrooms, offices, couch, etc. We want it in our hot little hand...the lighter and smaller (within reason) the better.

• Imagine the profitability of distributing all this stuff digitally (and wirelessly) instead of printing, storing, shipping, mailing and delivering papers, mags and books. I believe high school and college students could start using the Kindle instead of schlepping heavy textbooks around. Why continue paying $50-200 for a hard bound text book you read once? Printing and distributing is extremely expensive for publishers of books, newspapers and magazines. Publishers would love to see people read their content for a fraction of the cost electronically. Print publishers of all kinds who are now hurting could see profitability improve dramatically.

• Who sends hand written letters anymore? We all use email, instant messages and or text messages now. Now, I believe the print world is changing dramatically right before our eyes. Nearly every paper and magazine is losing circulation and advertisers so fast that many are on the verge of bankruptcy. With a market cap of $33 billion... I am pretty sure Amazon will be more valuable as a technology company distributing everything we read instead of an Internet retailer. It is a LOT cheaper, more efficient ,and saves a lot of trees to get our papers magazines and books electronically.

• Here are the pretty amazing highlights (my opinion) of Kindle device (from Amazon.com).

1. 3G wireless lets you download books in about 60 seconds right from your Kindle, anytime, anywhere; no monthly fees, service plans, or hunting for Wi-Fi hotspots.

2. Lasts 2 weeks without recharging (4 days with wireless turned on).

3. Over 250,000 books plus U.S. and international newspapers, magazines (includes automatic wireless delivery), and blogs available. You have all your books with you at all times.

4. Most NYT bestsellers are $9.99.

5. Amazon's vision is to have every book ever printed, in any language, all available in under 60 seconds on Kindle.

6. At 10.2 ounces, Kindle is lighter than a typical paperback and as thin as most magazines. Barely a third of an inch in profile, you'll find Kindle fits perfectly in your hands.

7. Kindle is completely wireless and ready to use right out of the box--no setup, no cables, no computer required.

8. A copy of every book you purchased is backed up online at Amazon.com in case you ever need to download it again. You can wirelessly re-download books for free anytime. This allows you to make room for new titles on your Kindle, knowing that Amazon is storing your personal library.

9. Kindle's screen reflects light like ordinary paper and uses no backlighting, eliminating the glare associated with other electronic displays. As a result, Kindle can be read as easily in bright sunlight as in your living room.

10. You can increase the text size of your favorite book or periodical with the push of a button.

11. By using the QWERTY keyboard, you can add annotations to text, just like you might write in the margins of a book. And because it is digital, you can edit, delete, and export your notes. Using the new 5-way controller, you can highlight and clip key passages and bookmark pages for future use. You'll never need to bookmark your last place in the book, because Kindle remembers for you and always opens to the last page you read. Kindle makes it easy to search within a book, across your library, in the Kindle Store, or even the Web. To use the search feature, simply type in a word or phrase you're looking for, and Kindle finds every instance in your book or across your Kindle library.

12. You can search and shop the Kindle Store wirelessly right from your Kindle, allowing you to click, buy, and start reading your purchases within a minute. No need to judge a book by its cover. Kindle lets you download and read first chapters for free.

13. With the new text-to-speech feature, Kindle can read every newspaper, magazine, blog and book out loud to you, unless the book is disabled by the rights holder.

14. Come across a word you don't know? Simply move the cursor to it and the definition (includes The New Oxford American Dictionary) will automatically display at the bottom of the screen. Kindle also includes free built-in access to the world's most exhaustive and up-to-date encyclopedia--Wikipedia.org.

15. Transfer MP3 files to Kindle to play as background music while you read. You can quickly and easily transfer MP3 files via USB by connecting Kindle to your computer.

16. With Kindle, you are able to download and enjoy more than 50,000 audio titles from Audible.com (Amazon just bought them out - now we know why) including bestselling audio books, radio programs, audio newspapers, and magazines. Due to their file size, audiobooks are downloaded to your PC over your existing Internet connection and then transferred to Kindle using the included USB 2.0 cable. Listen via Kindle's speaker or plug in your headphones for private listening.

• Why this is potentially (likely) game changing.

1. 1. Readers love the ease, convenience and lower cost of their favorite content.

2. Publishers love it because they save on all the other expensive stuff other than writing (printing, binding, shipping).

3. Amazon loves it because people tend to buy more papers, magazines and books using this device and Amazon's margins are way better too...it is simply way easier and cheaper for all parties.

Who are the losers from this massive shift that is just starting? UPS (UPS) (biggest shipper for Amazon), book binders, ink manufactures, paper companies, box manufactures, trash companies, book shelve sellers, & retail book stores.

I am eying Amazon calls for a big move.

Disclosure: No positions.

Comments

[SJD]

Good assessment. AMZN will be the "cloud" of the written and sung word.

2009 Apr 06 08:34 AM

[WACG]

Yeah, but can you make a notation in a margin? Can you highlight particular sentences? As far as real books are concerned Kindle will become "needed" when the current (and perhaps last) literate generation passes away. Reading is more than just "data transfer"; except perhaps for the tatooed cretins hunched around the mud hole.

2009 Apr 06 08:52 AM

[Debbie D]

Thanks I want one!

2009 Apr 06 09:22 AM

[sforce]

Kindle, tomorrow's Newton, today...

2009 Apr 06 09:43 AM

[David Tsao]

The Kindle program isn't broken out on their quarterly reports. Basically no one has any idea what if anything of material effect this is having on margins. I give kudos to AMZN for breaking new ground with Kindle and their AWS program, but until they reach economies of scale their margins will continue to run thin. As an investor it is still to early to tell.

2009 Apr 06 09:59 AM

[optionboy]

The stock price has nothing to do withe Kindle, tis a Scam stock that is a retailer selling for a P# of 52. First, dear Amazon is getting sued for copying some of the Kindle technology. Secondly competing products are about to come out that will reduce the Kindle to also ran. Saying that the stock is going up because of the Kindle is ludicrous. If sales were so good don't you think that Amazon's 24/7 PR machine would be telling you? This stock sells for metrics that are absurd, PE of 52, PEG of 2.5 and 11 times book. a retailer in a recession with unemployment increasing.

2009 Apr 06 10:13 AM

[raytayzmd]

...I agree but "losers" should also include paper and ink manufacturers...

2009 Apr 06 10:25 AM

[RobRum]

@WACG

Did you even read the article?

"By using the QWERTY keyboard, you can add annotations to text, just like you might write in the margins of a book ... you can highlight and clip key passages and bookmark pages for future use."

Perhaps you were too wrapped up in forming your pretentious comment to actually read the comment, before decrying future generations and technology which actually has a chance to increase reading for pleasure amongst the general population.

2009 Apr 06 10:32 AM

[User 389649]

I have been making the same arguments for two years. I was disappointed in the new Kindle. It is still too big, although thinner now, and the keyboard could easily be eliminated with a touchscreen keyboard that could pop up and occupy the lower portion of the screen, the way old palm pda's handled it. I expected a new kindle to be much smaller, and a little cheaper. I am waiting for Apple to pounce with something to compete, perhaps the new in-between screen size devices that are in the works. If someone combined electronic ink (kindle) with touchscreen technology, and brought it in for around $200.00, we'd be there.

2009 Apr 06 10:36 AM

[raytayzmd]

...well, I'd like to think that I'm a level or two above a "tatooed cretin"...I'm certainly not hunched around a "mud hole" -- at least, not yet...for casual reading -- as I think most readers are -- I don't have need for "notation in a margin"...more importantly, if you had done any research you would know this:

"By using the QWERTY keyboard, you can add annotations to text, just like you might write in the margins of a book. And because it is digital, you can edit, delete, and export your notes. Using the new 5-way controller, you can highlight and clip key passages and bookmark pages for future use. You'll never need to bookmark your last place in the book, because Kindle remembers for you and always opens to the last page you read."

...personally, for serious reading that requires serious notetaking, I keep a notebook or pad handy for scribbling down pertinent points...Kindle's benefits outweigh its flaws -- you can adjust text size, you can read in direct sunlight, you can have it read to you, you can clip and save articles from magazines and newspapers, you can carry around personal documents, it has a built in dictionary...wait, you can read it for yourself here:

www.amazon.com/Kindle-...

...well, that is if you're able to extricate your head from your ass!


On Apr 06 08:52 AM WACG wrote:

> Yeah, but can you make a notation in a margin? Can you highlight
> particular sentences? As far as real books are concerned Kindle will
> become "needed" when the current (and perhaps last) literate generation
> passes away. Reading is more than just "data transfer"; except perhaps
> for the tatooed cretins hunched around the mud hole.

2009 Apr 06 10:42 AM

[smctel]

This article is stupid and like people pumping Pets.com but even worse because back then it was the first time fooling people. People that buy AMZN here make people that bought Pets.com smart. The author is an idiot.

2009 Apr 06 12:52 PM

[smctel]

Wow a device that you can read a book on, how revolutionary. Sony has had a product for years and with no much success. This guy is falling for the AMZN hype. Seeking Suckers

2009 Apr 06 12:56 PM

[Jim_Wintner]

I'm a bit amazed at the nastiness of some comments and it's hard not to judge that the embedded intelligence is in inverse proportion to that nastiness.

Personally I am in awe of Amazon as a technology company. If I were an investor (I'm not), I would be dollar averaging a regular investment in Amazon. They outshine the competition.

But I just wanted to put in a few thoughts about the Kindle, which I have via a birthday gift from my sister.

I think it too is a great piece of technology, with whatever caveats might be obvious.

But I can't read books on it. It actually makes be deeply uncomfortable to do so. I exaggerate a little; I have read a few things, mostly the free samples. And one free detective novel, which soured me irredeemably on the Kindle as a literary oasis.

I want to feel the paper, see the cover, be able to idly flip forward and back, enjoy the nuances of typography (the monotony of Kindle typography is painful to experience) that are integral to the essence of a good book (as opposed to a good read).

I actually went to my local non-chain bookstore (NYC still has a few, though less than some smaller cities which uneconomical for B&N) to get anew book, asking the proprietess(?) for her current favorite as a recommendation. And I raced home to begin reading this dense travel memoir which would have grated on my nerves to read on Kindle.

I am absolutely in accord that textbooks and similar technical publications/documents are the sweet spot for this type of device and I anticipate a vast market to ensue.

Regards,
Jim Wintner

2009 Apr 06 01:25 PM

[Nanacat]

Yes, Jim_Wintner, I agree that the kindle is a totally different reading experience. Nothing like curling up with a good Kindle?

But I also agree that this is the reading wave of the future. And I love Amazon.com!

2009 Apr 06 02:12 PM

[optionboy]

Just wait until Apple and some others come out with competing products, it will make the Kindle look like a commodore computer, Pumpsters and Hypsters for this stock are out full force and never mention the metrics. This stock will have negative growth this year and sells for 52 times earnings, PEG of 2.5 and 11 times book. Did I forget to mention it has no margins < 4%. It would take 50 years at current earnings to recoup your investments. In this economy how many people are going to spend $ 359 dollars for a book reader ? How many people read that much. Hype, hype,Pump, Pump.

2009 Apr 06 04:13 PM

[kindle good not great]

sure there will be a market for people who like reading like this way, but i don't see how the author assumes amzn's margins are going to be much better?
authors/publishers should get similar royalties per real book or elec book.
some similar sized 'real' paperbacks sell for 99c others $8.99. some similar sized hardbacks sell for $9.99 others $24.99. customers pay the same shipping for either regardless of price. the only difference is customers will always expect to pay far less for an elec book vs a paperback.
the difference with itunes, is that people can buy individual tracks rather than the whole album. just buying a single chapter, doesn't usually work with books...

2009 Apr 06 04:56 PM

[2contango]

Amazon won't have a monopoly on electronic content delivery. And the Kindle is still subject to the fickleness of consumer tastes. Better wait for the next earnings report to see how well Amazon is weathering the overall downturn on consumer spending.

2009 Apr 06 05:37 PM

[Libertynewsprint]

The company that comes up with a Kindle like device and gives it away for free will be a powerful player in the market. I think Google could make it happen.

2009 Apr 06 06:04 PM

[Big Bear Lake Hostel]

The economics of the Kindle may only work for college students:
bits.blogs.nytimes.com...

For $400 the only benefit of the kindle is size and screen that you can read in the sun?!

I'll invest that towards a new laptop that is a million times more useful, a tad bigger, and I can watch HDTV on!

2009 Apr 08 12:44 PM

[Eric from PA]

Hi Jeff,

Great article......I agree with you. I think this will hit a mass appeal when it uses an OLED color screen. I am not sure that black and white will convert people.

2009 Apr 09 11:00 AM