Friday, February 5, 2010

iPad vs. Kindle

Yesterday a friend asked how I thought the upcoming release of the Apple iPad would affect the Kindle market. Obviously, it’s too early to tell for sure. No one knows exactly which books will be available on the iPad or what the pricing scheme will look like. More importantly, no one knows how Amazon will respond to the release of the iPad. That being said, there are a few things that seem apparent to me.

First, based on my own personal experience, Amazon recognizes that it needs to get the Kindle into people’s hands so that they’ll spend the money on e-books. This is a well-rehearsed business scheme: drive down the cost of hardware so that people will spend money on software that runs on the hardware. Hardware is usually a one-time cost for the consumer, but they’ll continue to spend money on sofware for as long as they own the device. Apple itself is familiar with this model; I’m sure they’ve made FAR more money selling songs on iTunes than they ever made on sales of iPods. Recently I dropped and broke my Kindle. The incident was entirely my fault and was certainly not related to any problem with the device itself. I called Amazon and they claimed it was covered under warranty (I’d read the warranty, and “user droppage” is not covered). They overnighted me a new device free of charge. This was about a week before the announcement of the iPad. Amazon knew that if I had to buy another piece of hardware I might be inclined to buy an iPad and they’d lose a customer who’d bought literally dozens of e-books in the last year. Their concern was not so much in ensuring they made money off selling me a new Kindle, but in making sure that they could continue to profit from me buying books.

Second, comparing the Kindle to the iPad is very much an apples-to-oranges comparison. There are people who are willing and cash-enabled to purchase $50,000 overpowered muscle cars with every accessory imaginable. That doesn’t mean there’s not a market for $20,000 Hondas that most people use to drive to their jobs every day. Likewise, a high-powered, flashy handheld tablet will appeal to a certain market, but this doesn’t preclude a market for lower priced, dedicated e-book devices.

Similarly, the Kindle seems like a much more likely gifting option than the iPad. Amazon sold an enormous number of devices during the holiday shopping period. It seems feasible to buy a loved one a $250, one-time-cost device like an e-reader. It seems less feasible that someone would buy their mother-in-law a $600 device that requires a $15-a-month data plan. The Kindle is a relatively simple device to use, with no montly data plan costs. This relative simplicity can appeal to a large group of consumers.

Some industry watchers have stated that people will avoid buying the large-screened Kindle DX since it only costs 10 dollars less than a much more capable iPad ($489 versus $499). I agree, but I still think the comparison is moot. As I stated at the beginning, much depends on how Amazon chooses to respond to the release of the iPad. Instead of increasing the capabilities of the Kindle to try to compete with Apple’s tablet, they should focus on reducing the cost of the device to continue to appeal to a consumer market that wants something simple and cheap (with a battery life measured in weeks rather than hours). Here are a few ways Amazon can do that:

· Get the cost of the Kindle below $200 (from its current price point of $259). I suspect that many people will not even consider the comparison between a $200 e-reader and a $600 tablet. A three-fold cost difference puts these devices into completely different market brackets.
· Incorporate a color screen into the next generation of Kindles. In terms of reading, I don’t personally believe that having a black-and-white only screen is hugely important. However, the lack of a color screen is widely perceived to be a disadvantage, so removing this barrier will be an important way for the Kindle to remain relevant in a digital-media market.
· Most importantly, Amazon needs to focus on getting books onto their device. As I have stated in a previous post, the single most important factor in choosing an e-reader device is whether the books I read are available on the device. All the features in the world are meaningless if the books I want to read aren’t there. Amazon should be doing whatever it takes to get publishers to stay with the device, even if it means increasing the price point from their standard $10 scheme.

Amazon’s main job is to separate itself from the iPad as they are not likely to be able to compete with Apple on its own turf. Nor do they need to; if they play their cards well, there’s absolutely no reason the Kindle can’t continue to be successful in a post-iPad world.

PS: I recognize there are other very good e-book readers out there. I'm only discussing the Kindle because it's the one I have and the one whose business model I understand best.

1 comment:

Donna said...

I would argue with you on this I am more likely (even at 3 times the cost) to purchase the iPad which does 10 times as much as the kindle as I am to purchase the unitasker the kindle. Either way I am not buying either today or this week. Oh and I also understand the $15 a week data plan is optional to be able to connect to the web and get your email on it. Cheaper than the same upgrade for your fancy phone. ;)