November 30, 2007

The blogosphere punishes neglect. I caught up with the always-enjoyable LiveDigitally to discover that it’s had a makeover (I like!) and a fine piece by Jeremy Toeman on why the Kindle will fail. Here’s the rub, though. Jeremy is using mass market breakthrough — millions of units per year — as his criterion. In fact, Kindle can be a profitable business for Amazon at much lower volumes, and can be an effective enough customer retention tool that Amazon is inclined to keep it around as long as customer spending is profitable enough to offset bandwidth subsidization for things items such as free chapters and Web pages.

The scenario of needing Kindle’s EV-DO book-buying capabilities before one heads off on a flight may not be so common per se, but one place where Amazon will be very happy to have EV-DO working is at the doorstep of — indeed, even inside — every Barnes & Noble and Border’s.

There hasn’t been any indication that Amazon is, for example, subsidizing the hardware, which would put more pressure on scaling up quickly. That said, Kindle’s success must be measured the way game console success is measured — not just by units, but by tie ratios. Not only is there less competition in the nascent e-book market, and not only do those competitors have access to far fewer titles, but their customers are less likely to buy more because they have access to the store in fewer places.

As many articles about Kindle have pointed out, it excels in the buying experience, and Kindle is as much a store as it is a reading device. And as long as you keep off that ill-fitting cover, the reading experience on Kindle is comparable to the Sony Reader’s. They represent the state of the e-book art.

Jeremy rightly points out that books are not like music — even albums that come closer to the price of books. For one, avid readers who would find value in the Kindle are a much smaller market than those who would be interested in buying a few tracks off of iTunes.

But, unlike the iPod, every Kindle sold is almost guaranteed to result in content revenue. Remember too that Amazon has a vast database of avid readers at its marketing disposal. Kindle isn’t (so much) a platform in a battle for market share. It’s a $400 invitation to buy more books from Amazon. But, hey, it makes them easier to carry.

Next week’s Switched On will discuss how Kindle is even more significant as a harbinger of connected consumer electronics than as an e-book reader per se.

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