Amazon's Kindle 2.5 Doesn't Seem Worth the Buzz

Amazon (AMZN) is holding a press conference at a New York university today (Wednesday) to probably announce what many optimistic investors had been waiting for: a Kindle with a bigger screen.

Much of the reason for the press conference seems lost as the important info has been leaking out over the past few days. Engadget, a popular electronics blog, published this post about the new Kindle, including leaked pictures.

Supposedly, the new Kindle will feature a 9.7 inch screen, enhanced browsing capabilities, and a built-in PDF reader, adding some more functionality to the device. However, the Kindle is still far from being a full-fledged computer-alternative (I'd argue that the most recent iPods are much more functional) so I don't know if the Kindle buzz is merited.

Newspaper and textbook publishers are looking to this bigger Kindle to try to increase popularity of their products: apparently, Case Western, Pace, Princeton, Reed, Arizona State, and Darden School at the University of Virginia will be participating in a trial where Kindles will be used in the classroom.

However, as a college student, I don't see this application of the device gaining much traction. Traditional textbooks are convenient because they can be taken everywhere (though not necessarily all at one time). The new Kindle will replicate this ability, with the added convenience of carrying a single device weighing ounces instead of lugging a half-dozen textbooks weighing 20 pounds. However, the appeal ends there. Paper textbooks can easily be marked up to enhance the learning experience; even with some sort of highlighting or annotation feature, the effect is largely lost on-screen. The best part about paper textbooks are their reusability; books used year after year are very cheap to buy secondhand, and even new books can be returned or resold for a significant portion of their face value. Though the user will likely be able to keep their Introduction to Macroeconomics book forever, it retains little value after the course is over.

I also think that there is an emotional objection to electronic textbooks. In my Penn State-mandated public speaking course, the required text was electronic. It amounted to a PDF with links to a limited-access website with additional material and assignments. For this, the publisher charged about $70 - a hefty price for intellectual property. Students were outwardly angry and hostile, and many, like myself, didn't bother to even purchase the textbook. People would rather spend $100 for a paper version that they can sell to a friend or the bookstore for $50 than pay for material that feels like it should be free.

Maybe schools like Princeton will have free course materials or heavily subsidized textbooks, but I don't see the Kindle catching on at Penn State.

The other highly-touted new application is the reading of newspapers, and struggling companies like the Times (NYT) are hoping that they can sell a lot of $10 monthly subscriptions to help stop the widespread bleeding. But as other bloggers and writers have pointed out, why would someone pay $10/month for the Times limited-feature Kindle edition when their regular website features much deeper and richer content for free?

Unless there are some mind-blowing details that haven't been leaked yet, I don't see this new Kindle creating much of an addition to Amazon's bottom line anytime soon. I think that Amazon's shares are already more than fully valued, so if AMZN shares do pop Wednesday, that pop simply provides a juicier entry point for a short position.

Comments

[Stephen Fra...:]

First, in the article you link too, I primarily talk up the quality of Amazon as a company while saying that the Kindle 2 is no game-changer (sentiment that I still stand by). At the end of the piece I stated that I wouldn't buy or sell AMZN shares; sure, I missed out on some upside, but I had no short position either.

In terms of your life suggestion - very cute comment. I won't make a personal reply, so enjoy your lulls.

On May 06 08:36 AM raytayzmd wrote:

> HAW!!...let's see, you wrote a similar article back in February:
>
>
> seekingalpha.com/artic...
>
>
> ...of course, since then the stock has doubled in price...maybe market
> analysis isn't your "forte" -- so to speak...maybe you're destiny,
> in fact, is to sell "ski wax" from your bedroom...think about it,

May 06 10:38 AM

[Phil49:]

I've long been a believer that the blog format - while really great in some ways - is probably NOT well suited to help investors improve their returns.

It's important to be punchy and opinionated - being "deep" is almost detrimental. And when you have 20-somethings with no apparent training blowin' it out their ... ear ... well, maybe, someone else besides the author has a different opinion.

Anyhow, as a small AMZN shareholder, I'm appalled at what sounds like "stodginess." There's another piece on S.A. that wishes Barnes & Noble a good afterlife. It's terribly easy to miss by a mile whether or not something is a game changer. I'm inclined to think that with textbooks, Jeff's right and know-little whippersnappers are ... out of their depth.

Start with "pulping" - unless it gets cost effective to dispose of trash off the planet earth, we simply have to produce fewer disposables - and much sooner than some may think.... People are right to question AMZN's chosen price point - $500 is probably a smart move to give this some cachet, but it's not likely to lead to any out-of-stock conditions.

But the big problem with the "analysis" (to leave out the quotes would simply be injudicious) is that it's like sticking with P/E's based on latest 12 months actual earnings - absurd when it comes to tech investing.

Does anyone doubt that color is - yes, a guess on my part - 12 months out?! ... Does anyone think that 5 universities was all that Amazon could interest? ... Does the U.S. only (that's really pretty sad, I admit) constraint sound like one that Jeff feels good (and accepting) about?

YES, one shouldn't invest with assumptions like a permanent monopoly (now, that's probably #1 source of downside for all things Kindle) or all the textbook makers rolling over (i.e., signing on, letting AMZN all but dictate pricing, etc.) ... But neither should one look at Rev 1.0 - here, I'm talking about non-paper textbooks - PERIOD - and say that it's D.O.A.

My first computer was a Vic-20 I think it was called. ... I don't happen to think that the iPhone at present prices (including the monthly) makes any sense at all - FOR ME - but that's the thing about companies indisputably expert at marketing (SERIAL-ly successful!) - they manufacture demand as much or more as they manufacture products.

Just as the jury is out on whether there will be print newspapers in any significant number 5 years hence, the state-of-the-art in textbooks is what used to be called "low hanging fruit." ... Amazon is well on the way to fashioning a "solution" that will benefit at least 4 constituencies - and will profit mightily in so doing - because this is such a huge (and growing) market (think global!) that it should give Amazon the multi-year run that operating systems gave Microsoft.

May 06 12:55 PM

[Stephen Fra...:]

Phil,

Well-written comment with some good points.

However:
I don't know when was the last time that Jeff used a textbook... but I currently do, and I'm surrounded by 40,000 other kids that do. I'm sure that Amazon has done plenty of market research beyond my small anecdotal observations, but I still think they're wrong if they believe they can convince college kids to spend an extra $500 that they dont have. However, if Amazon's distribution is different - free Kindles with book purchases, university-owned Kindles, rented Kindles, etc... there might be a better chance of catching on. But if Amazon execs honestly believe that they'll sell the devices straight-up to the average (non-ivy league) college kid, they are delusional.

Considering your use-of-resources argument, sharing, reusing, and recycling traditional textbooks is pretty environmentally-stable. Not many people are willing to throw something worth $100 in the trash, and even when books can no longer be resold, both my university and independent bookstores accept books for recycling.

Amazon will continue to face tough competition in this e-reader space, with offerings like Plastic Logic's reader (www.plasticlogic.com/) challenging Amazon's dominance. I will agree that the Kindle currently is the premier player in this space, but considering the still tiny overall market, another device could unseat the current king.

My overall opinion on Amazon, once again, is that it's a great company, but the Kindle will not add meaningfully to its bottom line anytime soon.

And for any interested reader, in case Seeking Alpha doesn't post it, I published a follow up to this original post on thenobuylist.com

May 06 01:26 PM

[PeterB:]

Maybe as a college student, you don't see any application for a Kindle. However, maybe when you are old enough for your eyesight to be deteriorating, you will see some point in being able to read a book on an electronic device that will blow up the text to a readable level. And how would such a person, such as my late father-in-law, or my wife, handle reading a book three characters at a time on an iPod?

Yes, I agree that textbook prices are often disgustingly high, but I suspect the first publisher to offer a low-cost electronic form may force such a trend. Perhaps if you are studying Macroeconomics, you can start a new company to do that, and put the older companies on the spot, if not out of business. Incidentally, I do still refer to my old Physics textbooks from half a century ago from time to time.

May 06 03:48 PM

[Missing_Link:]

On May 06 04:19 PM Cetin Hakimoglu wrote:
> Maybe it isn't worth the buzz, but AMZN is a great stock. $120 by
> end of year because it has huge growth, market dominance, and immune
> to recession.

Wait, what? Immune to recession? Nobody's immune to a big enough recession.

AMZN is a great company but seems ridiculously overbought at a PE of 52.

May 06 08:42 PM