Jeff, Use Kindle To Own The Daily Habit
Yesterday, as anticipated, Amazon's Jeff Bezos announced the debut of the large-screen Kindle, the Kindle DX. The print media industry has been watching this one closely because, unlike earlier versions of the Kindle which work best with small format books, the new larger screen Kindle DX has a very large reading surface and is positioned as a digital device suitable to read textbooks, newspapers and memoranda on. Wow! Finally, we have a savior for the newspaper, magazine and educational book publishing industries that are saddled with massive legacy cost structures built around "ink on dead tree" production and distribution? Or not?
In my mind, there are big questions about whether the Kindle will become the paperless reader for the 100+ million Americans who read newspapers, magazines and textbooks every day. Is it because the device isn't suited for the task? No. All reports are that the Kindle DX is a great product for large format reading, even though it lacks color and high resolution graphics at the moment. Why my skepticism? I think that Kindle has a business model problem.
Yesterday's Kindle news also included earning call comments by News Corp.'s Rupert Murdoch and U.S. Senate testimony by Jim Moroney, CEO of The Dallas Morning News (Disclosure: I am a board director of A.H. Belo, Inc., owner of the Morning News). Both were asked their opinions of the new Kindle as it related to their newspaper businesses. Both had the same answer: Amazon's demands for 70% of the revenue generated from subscriptions delivered to Kindle devices made it inappropriate as a long-term strategy for digital delivery of their newspapers.
Jeff, what are you thinking? You have a pioneering device in what is likely to be a very large emerging market. If things go well, you might find yourself owning not only the largest market share of portable digital readers; you could own the operating system and the network serving the entire emerging portable netbook market as well -- not unlike what Apple is close to achieving in the smart phone and PDA world.
Jeff, if you made Kindle a "daily habit," Amazon could not only own a much larger piece of the retail publishing world than you have today, you could own a very large share of the educational publishing world and the news and lifestyle publishing world, and, most important, a very large share of all local distributed e-commerce -- the classified and display ads of the future. You already have the network, e-commerce and retail engine and experience, along with the distribution and logistics facilities to exploit it. You just need a way to integrate Amazon into people's lives for more than just a place to buy a book or some discount merchandise. You need to make it a "daily habit." How, you ask? Here is what I would do:
• Feed rather than starve developers. Microsoft taught us this lesson years ago with Windows. Apple has taken it to a new level. Developers (including content providers) are your friend. Like any good parasite, you can live off them very successfully for many, many years if you don't kill them. The fact that people can use their Kindle DX to read documents, including PDFs, opens up enormous opportunities for you. Tens of thousands of developers could be at your door. The Kindle can -- and should -- be bigger than the iPhone. The iPhone will always have a size problem. Who wants to hold a book to their ear? Meanwhile, you can win the portable reader (writer) market.
• Load your network with daily content. You need newspapers more than they need you. Make it easy for them to put their daily content on your devices. Make it easy for them to promote your devices in their papers every day. You should act more like Apple and reverse your revenue splits. Give them 70% of the subscription revenue. If you really need to protect your margins and the cost of running your wireless network, require newspapers to provide a certain amount of in-kind marketing support in their papers and on their Web sites.
• Integrate text ads into your platform. Yes. It is time to deploy Amazon's version of AdWords and AdSense. You have an extraordinary recommendation engine. Use it to target ads on the margins around all of the daily content you get from your partners, sell your goods and your partners' goods, and build a third-party advertising business.
This is where the real money is. It's not in subscriptions, though they are nice to have as well. Google does more than $20 billion annually in text ad sales (you should know, you buy a lot of them); you could take 25+% of that over time if Kindle users had a daily habit.
Jeff, Google has regulators nipping at their heels and most content publishers don't trust them. Make the enemy of your enemy your friend. Focus on the secondary and tertiary monetization opportunities with the Kindle, not just the sale of the device itself or the sale of subscriptions.
Years ago you took a lot of heat from investors for spending billions of dollars for warehouses and distribution logistics. You were focused on building value for the long term. You were right in that case. The idea of building up the Kindle and your network as a long-term platform play is staring you in the face, but you need content to make the Kindle a daily habit. Focus there, attract lots of high-quality daily content -- and you will have it, and all of the spoils that come with it.
Readers, what do you think Jeff should do with the Kindle DX?