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?

13 comments about "Jeff, Use Kindle To Own The Daily Habit ".
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  1. Jason Krebs from Tenor/Google, May 7, 2009 at 3:34 p.m.

    When I first saw 70/30 I thought that was right on for them. I didn't understand the commotion until the 70 was for Amzn?!?!?! That's just outright crazy. They wouldn't (couldn't) do that for any part of their other retail sales.

    In other opinions, I like the kindle for books, but i still wouldn't pay a sub fee for anything on it. I pay $2,500 yr for digital cable and broadband. I don't need to pay more than that for news/info.

  2. Carol Ackerman from the ackerman group, May 7, 2009 at 3:40 p.m.

    Dave -- I posted your well written, provocative article on most of my LI groups and Tweeted, as well. You're as much a marketing guru as an accomplished writer. Kudos for opening the horizon even further on this topic and hopefully, Bezos's eyes, as well.

  3. Monica Bower from TERiX Computer Service, May 7, 2009 at 3:45 p.m.

    Demanding 70% is tantamount to screaming 'I don't think the Kindle is going to last, and I need all my money upfront.' Charge papers and magazines a rate that's about half or even a third of paper printing costs based on total distribution, the media will storm to their door. Printing costs are extortionist and the real but mostly unexamined reason why print media is dying - their real estate costs much more than they can reasonably expect advertisers to pay to cover the cost of printing, whether internal or via an actual printing company.

    If I manage a prestige press magazine and I want to limit it to 25,000 subscriptions to reduce my digital 'printing' costs, so be it. I still charge advertisers to advertise in the traditional way, with added internet marketing bells and whistles, but in any case the advertisers never work with Amazon, they work with me. I have limitless realtime data about readership to feed to agencies considering my real estate; they make a more informed decision and have better results because of it.

    Best of all the costs are mostly shared between advertiser and publisher so the reader needs to only pay a token amount, of which a significant portion could be retured to affiliates as a reward for sign ups, exactly as it is now. Kindle simply needs color graphics, and the whole thing can be migrated from the existing model to the digital, to take advantage of the relative cheapness of reusable digital vs the unholy costs associated with printing every day or every week or every month on actual paper.

    Kindle is the paper, but with more brains; nevertheless the brains don't make it anything more than real estate, the same as paper.

  4. Dennis O'neill from Studio4Networks, May 7, 2009 at 3:47 p.m.

    Dave - excellent, you are right on the point. Your best column yet....If amazon doesn't seize the chance to have the kindle DX become the reader of choice, newspapers/magazines will migrate somewhere else...

  5. Patrick Aievoli from, LLC, May 7, 2009 at 3:48 p.m.

    What Bezos should do is partner with us to deliver the content to the higher ed market through our website. We provide a safe academic alternative to other social networks while embracing e-Learning (think textbooks) and e-Commerce (ads, videos, games, entertainment, etc.). Couple this with the Kindle DX and you have a killer app for a killer product. Take a look and see what I mean.

  6. David Cooperstein from Figurr, May 7, 2009 at 4:01 p.m.

    The point I agree most with is that to change habits, you got to encourage the content providers to help you get there. It pains me to pay $1.50 for the paper when I have the time to read it, but I get full value from it because I don't "surf" the paper like I do a web site. I read it in depth.

    I'd love to read the NYT "paper" combined with the interactive charts of the online site, but without having to balance a laptop and a connection. I haven't tried the Kindle yet, but previous attempts to read the "paper" in a new way have failed to grab my attention. I would pay if I could get an advertising-lite version that blended the deep readability of print with the digital benefits of interactivity.

  7. Lynne Tierney from Nightly Business Report, May 7, 2009 at 4:54 p.m.

    I agree with Jason & Monica -- taking a 70% split is inadvisable. Back in 1994 AOL used to pay content providers, and as they became more successful they adjusted the split. Eventually they stopped paying because their platform was the only way to reach millions of people. Of course, nothing lasts forever! Still, Kindle would have been wise to follow that model to start.

  8. John Jainschigg from World2Worlds, Inc., May 7, 2009 at 5:14 p.m.

    Superb article. Not only should Jeff do everything Dave has recommended, here, but he should look at how large-format e-readers change the formula for advertising display, function, metrics and valuation, creating a new opportunity. He shouldn't _give_ this opportunity to Google -- he should _take this away_ from Google and make it an Amazon play.

    A large-format e-reader provides ample static space for the screen-based equivalent of 'facing page advertising' - in principle up to and including the LHP=ad/RHP=copy formulation that still sustains paper-based magazines today. It can, with proper screen layout, deliver ads in the context of a sustained, linear reading process that's totally unlike the "search for the fact I want, click to a random page, grab the fact, go away" web reading pattern. And (as generations of magazine readers who buy magazines as much for the ads as the content will confirm) it can deliver ads that not only don't interrupt the reading process, but actually add value.

    In the context of Kindle or other subscription-driven e-reader that knows who the reader is (and with addition of a GPS chip or IP location tech, _where_ the reader is), you're talking about a massive, game-changing advertising opportunity here. Throwing open the door to Google and letting them strip-mine it for eyeballs is a mistake.

  9. Douglas Ferguson from College of Charleston, May 7, 2009 at 6:12 p.m.

    Everyone says it's a crazy split, yet NYT and WAPO went for it. So if the big boys are willing, why should Amazon charge the others less? Let's see if the holdouts can catch up with Kindle. Don't use your Betamax analogy, which had a fatal flaw in recording length; think TiVo instead! First to market with a cool device wins. Zune is much better than iPod, but iPod wins anyway. Kindle will prevail, too.

  10. Sean Gharavi from Aidris, May 7, 2009 at 6:49 p.m.

    There's no one right pricing strategy, it just has to fit the overall marketing strategy.

    However, the high cost means greater profitability, as a percentage of sales, but slower adoption and a marketshare showdown in the foreseeable future. I would agree with this article that I would probably suggest that they initially strive for market penetration first and profitability second.

  11. David Graves from Global Capital Strategic Group, May 7, 2009 at 7:55 p.m.

    The Kindle of whatever size is not going to materially change the newspaper business nor will any other reader. The problem in the newspaper business has nothing to do with the delivery method, it has to do with the loss of classified revenues which accounted for 70-80% of newspaper profits. The current revenue base of newspapers couldn't support the existing cost structure even before the recession destroyed the advertising market (which by the way is unlikely to return to its former level even after the recovery).

  12. Michael Senno from New York University, May 7, 2009 at 10:30 p.m.

    newspapers and magazines should create a consortium and develop their own device and cut Amazon out. Then the papers should use the alliance to bundle content in new ways that might be more appealing to readers, rather than strictly by locality.

  13. Paula Lynn from Who Else Unlimited, June 5, 2009 at 9:45 p.m.

    OY! OY! OY! When greed takes over, so does death...of a product. Dave, once again, you are the voice of reason. Michael Senno, great idea. They won't do it.

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