Kindle - Good Device, Impractical Pricing

I have enjoyed writing about the Kindle and Amazon.com (AMZN) on multiple occasions over the past few weeks, so I decided that I'd try to bring everything together in one last post on this topic.

Both the Kindle 2 and the Kindle DX are attractive devices that perform niche functions spectacularly. If you're into reading books, both devices can make that hobby better. The Kindles have the ability to carry an entire library of books everywhere, and the ability to add to that library instantaneously from anywhere courtesy of a Spring-powered network. The e-ink in the reader is easy on the eyes, allowing for extended reading without the eyestrain that often comes from extended reading of an LCD screen.

One of the best aspects of the Kindle (which often goes unreported) are the thousands of free titles available for it. Virtually every book that is off-copyright can be read for free on the Kindle (as on any other e-book reader). A Kindle user can read all of Shakespeare, Mark Twain, and more without spending a cent on the literature itself. The content is often available for free in the Kindle store (which means easy wireless downloads anywhere) or can be found in PDF format, which the Kindle can also utilize.

That function, coupled with a price decrease could be the feature that expands the Kindle's market appeal. The current price of $359 is still prohibitively expensive, as the $5 bills saved on Huck Finn or The Merchant of Venice take way too long to add up. But if Amazon was able to offer Kindles to schools for a price closer to $100, the savings would add up and schools may be motivated to integrate the Kindle into textbook curriculum.

So my reoccurring analysis is that the Kindle is a solid device that prices itself out of practicality. The bookiest of bookworms may be able to see some savings and yuppies may buy the device for the "cool" factor, but it is not yet practical to substitute the Kindle for paper books. But more and more e-readers are entering the market, which should force Amazon to price its reader more competitively in the future. I don't doubt that there will be a day when many 7th-graders read Uncle Tom's Cabin on an electronic reading device. But today is not that day.

And the same overpriced thesis can be applied to Amazon shares. Amazon is a great company that has allowed me to make money (via selling on the website, not by owning the stock). As eBay (EBAY) continues to slide towards irrelevancy, Amazon will become even more dominant in e-retail. But shares are ahead of themselves, and the potential for medium-term price appreciation from this point seems minimal.

Comments

[Roger Knights:]

Amazon wouldn't be the first company to "skim the cream" with a high initial price. Like other companies that have done this, their marketing guys may have figured out that this will give them the greatest profit. In a year or so the company may shift gears and cut the price.

For now, the company is doing very well with the Kindle in terms of profits--and the competition hasn't made much impact on their profit. E-ink is expensive, so there's not much room for Amazon's price to be undercut.

May 26 01:52 AM

[Andrys:]

You don't mention the main reason for the higher pricing, and that is the 24/7 wireless access to the Web without needing to find a WiFi hot spot that might not even be free. It's Sprint's cellular EV-DO 3G network that provides this almost everywhere/anytime access.

The wireless access to the Net is paid for by Amazon and is a feature mentioned when speaking to the schools that are their partners in the upcoming study with the DX.

The MiFi 2200 is a new, amazing portable wireless 'private hotspot' and the pricing on that fast-selling device tells you how expensive 24/7 wireless - For more than a week per month's worth of wireless access it's $60/month. The $40/month plan is considered 'useless' by industry reviewers.

Yet the Kindle's access is $0 per month. It's been calculated into the unit's price as well as into the delivery of books and periodicals. No one knows if the calculation is covering actual hosts, but this is a feature that can't be ignored when talking about pricing.

Apple's new iPhone pricing is $200 with 2 yrs of Basic Svc with full Internet wireless at $70 per month.
That is *without* text messages (though the old plan included 200 messags).

Add that all up and you can see yearly costs for each of the latter two. The Kindle is $360 one time. The Sonys are close to that price without wireless.

I have a guide to using the Kindle's web browser for those interested at kindleworld.blogspot.com

- Andrys

May 26 03:21 AM

[Andrys:]

Correction of my post:
"No one knows if the calculation is covering actual Costs" :-)
(not 'hosts')

May 26 03:29 AM

[raytayzmd:]

...geez, what a total waste of time!...I mean, maybe criticism would be warranted IF the Kindle were FAILING to find a market!...but given the damn things seem to be selling like proverbial hotcakes, how stupid would it be to lower the price?!!..."more e-readers are entering the market"????????...uh, excuse me, but I do believe a variety of e-readers have been available for about a DECADE now!...gee, that didn't seem to have much effect on Amazon's basically taking over the market and expanding it few thousand fold...are you familiar with a game called "king of the hill"?...with such business acumen, no doubt Mr. Frankola will selling "Whack's Wax" out of his room for many, many years to come!

May 26 08:20 AM

[toobad41:]

I don't own a Kindle and probably won't purchase one until there are significant improvements. Until they are able to load graphics, charts, photographs, figures, art work, etc. in color and the ability to write in the margins and highlight ability. Until that happens I am not buying. I remember my first purchase of a hand-held calculator having just four functions for over $100. Now your can buy one with several functions for less than a few bucks. Kindle will follow this senario. If they don't make the improvements I mentioned above someone else will. I will just wait.

May 26 09:22 AM

[John100:]

My sentiment exactly! :) It's just too expensive. Otherwise, I would be interested in it very much.<br><br&... the other hand, Amazon may or may not be making much on Kindle 2 depending on the operating costs outside of the materials and manufacturing process, such as advertising, Kindle Store, and other related activities. <br> <br>Anyway, I don't have a Kindle but checked one out from a friend. While I am very interested in Kindle, I am still waiting for these books to be DRM free. It's just so much easier and "thought-free" when I don't have to worry about DRM and how I use something. The higher the resolution, the better it is too. We are nowhere near true 300-dpi but that's a technical limitation at this point. <br>
On the note about Amazon, I recently came across an interesting table that details the discounts on Amazon. <br>It is at www.uberi.com <br>Maybe someone will find it useful too.

May 26 02:59 PM

[John100:]

(Please excuse the mess in the previous comment). My stupid text editor inserted a bunch of HTML tags and messed it up. Let me try to paste it again...

The article states my sentiment exactly! :) Kindle is just too expensive. Otherwise, I would be interested in it very much.

On the other hand, Amazon may or may not be making much on Kindle 2 depending on the operating costs outside of the materials and manufacturing process, such as advertising, Kindle Store, and other related activities.

Anyway, I don't have a Kindle but checked one out from a friend. While I am very interested in Kindle, I am still waiting for these books to be DRM free. It's just so much easier and "thought-free" when I don't have to worry about DRM and how I use something. The higher the resolution, the better it is too. We are nowhere near true 300-dpi but that's a technical limitation at this point.

On the note about Amazon, I recently came across an interesting table that details the discounts on Amazon.

It is at www.uberi.com

Maybe someone will find it useful too.

May 26 03:05 PM

[tmorris007:]

Stock's up $9.00+ or almost 12% since this article was published. Nuf said about this author's judgement!

Jun 06 01:39 PM