You are here: Home / Amazon / Six reasons why Amazon.com will give away the Kindle

Six reasons why Amazon.com will give away the Kindle

by 19 Comments

We were intrigued over the weekend when CNN published a detailed analysis on why Amazon.com should just give away the Kindle. The electronic book market is growing fast and getting more crowded, which has fueled some speculation that Amazon may decide to drop the price of the device, which now retails for $139, to $0.

We wondered whether that actually could occur, so we turned to Seattle venture capitalist Scott Jacobson who previously worked on the Kindle team at Amazon. Jacobson, a partner at Madrona Venture Group in Seattle, said he doesn’t have any direct knowledge of Amazon.com’s plan. But even so, he said that he “wouldn’t be at all surprised to see them offer free Kindles to some segment of customers.”

Here’s why Jacobson thinks Amazon may pull an Oprah and give free Kindles to some of its customers.

Jacobson

  1. Kindle owners buy a lot more books. Amazon could probably pay for the hardware over 2-3 years from the extra book margin.
  2. Amazon is 70 percent to 80 percent of the e-book market. While it’s growing rapidly,
    it’s still small. Getting a lot more Kindles out there could help accelerate overall market growth.
  3. Lock-in. While Amazon is more open than Apple, they are still a closed ecosystem. Getting more customers invested in their platform sooner will make it harder for them to leave.
  4. Cost curve. Amazon’s cost to produce Kindle (particularly WiFi version) gets cheaper as they produce more volume; could see a (less than) $50 cost to Amazon in the next one to two years. Makes it easier to give away.
  5. They know the power of free. (See Amazon Prime, Unlimited Video Streaming for Prime members.)
  6. They can afford it…and they are playing to win.

So, that begs the question: How would Amazon.com actually give away the Kindle, and which customers would get the perk.

As noted above, Jacobson thinks that Amazon Prime customers would be key targets. He also thinks that a free Kindle could be an added perk to any customer who committed to a subscription program, kind of like the book-of-the-month club.

“If Amazon can lock-in content margin, they can give away the hardware, similar to
how mobile carriers lock-in bandwidth margin in exchange for free/subsidized phones,” notes Jacobson.

And even if the free Kindles don’t happen this year, Jacobson said he believes the price will continue to fall.

“I’ll (bet) we see a $99 Kindle this year whether Amazon does a giveaway program or not,” he says.

John Cook is co-founder of GeekWire, a technology news site based in Seattle.

  • PJ

    As someone who buys a lot of books from Amazon, but as yet do not have an ereader, the giving away of Kindles for free really perks my interest. I have been holding off buying a Kindle with the hope that the price will drop, so I’ll be watching this with interest.

    • Ehphil

      PJ – the savings in book costs pay for the Kindle already. You can buy one for $139 and pay for it in 6-12 months if you buy 2-3 books a month. It’s a great opportunity!

      • PJ

        Ephil – I buy more than 2-3 books a month. The problem for me is that the eBooks that I want are still averaging $9+ and that is what I’m paying for hard copy books–this way I can at least lend them to my friends. So if the Kindle were free it might be worth buying the eBooks otherwise, not yet.

        • chiefsss

          I believe that if your friends also have a Kindle, that you can lend a book to them for a certain time period (not completely sure on this)

    • http://profiles.google.com/ryanrray Ryan Ray

      A promotion for an almost free Kindle for people who have purchased $200 of books through the store seems like a good move. Specially in light of Apple testing the kick-Amazon-out-of-the-app-store waters.

  • ddlee

    I’d bet on the subscription model. Look for free to happen when sales price meets hardware cost.

  • http://blog.CascadeSoft.net @CascadeRam

    >>Kindle owners buy a lot more books. Amazon could probably pay for the hardware over 2-3 years from the extra book margin.

    I think the analysis above is mistaken.

    It is true that Kindle owners do buy a lot of books. However, that demographic has a strong selection bias – people who buy Kindles tend to be people who buy a lot of books.

    If the Kindle becomes free, Amazon will be looking at a very different demographic group and the “Kindle owners buy a lot more books” satement will no longer be true.

    • http://twitter.com/scottjacobson Scott Jacobson

      Great point. My household certainly buys a lot of books. But we buy a lot more books through Amazon since we’ve bought Kindles.

      I looked at our order history on Amazon for 2006, and we bought 12 books. That was the year before Kindle launched.

      I looked at our order history on Amazon for 2010, and we bought 47 e-books on Kindle (and 1 physical book).

      In part, we buy more e-books because they’re cheaper. In part, it’s because they are easy to try/buy on Kindle and you can get immediate satisfaction. In part, it’s because we’re trying to buy all e-books (not kill trees) and so we consolidate our book-buying on Amazon (versus airports/local stores).

      You’re right that there is selection bias in current Kindle owners. But our experience is that Kindle has changed our book-buying behavior as well. I think it’s a similar phenomenon to what Amazon has experienced with Prime. Once you’re invested, the convenience of the service makes you want to buy more stuff through Prime and does have a meaningful before/after impact on customer purchase frequency.

      Scott

      PS- I don’t think Amazon will give away free Kindles to everyone either. And they may not do it at all. But if they do, they’ll likely target people who already buy a lot of books, and who will likely buy a lot more books if they own a Kindle. My $0.02.

      • http://blog.CascadeSoft.net @CascadeRam

        good point, I agree that it will make sense for Amazon to offer free Kindles to a narrow segment of current Amazon customers.

    • http://pulse.yahoo.com/_WPSOZXUZFELEEHT5LT6GSL7IQ4 bubba gunners

      plus, what about ebook sharing?

  • http://www.facebook.com/profile.php?id=1086131350 Dan Anderson

    They basically already give away the Kindle by offering the free app on most phone platforms. I don’t think Amazon will stop charging for the Kindle itself (they may just keep lowering the product cost). But the experience of a Kindle and access to your Kindle library is already available for free on any iPad or Android tablet thanks to the Kindle app.

    • http://hal-obrien.livejournal.com/ Hal O’Brien

      “(A)ccess to your Kindle library is already available for free on any iPad or Android tablet thanks to the Kindle app.”

      Including, ironically enough, a rooted B&N Nook Color.

  • http://twitter.com/Buzzmodo Buzz Bruggeman

    I totally agree as to the $99 WiFi only Kindle. Amazon should ship that immediately, and gut Apple’s plan for a 30% tax on their content. I would buy one immediately, and forget looking at the iPad2.

  • http://www.puzzazz.com Roy Leban

    This wouldn’t surprise me, but I think it’s a more likely that they’ll give away the Kindle 4 than the current model. I could imagine a free B&W WiFi model, a $149 Color WiFi model and a $199 Color 3G model.

  • http://x.co/J9cm PortablePay – PhoPay – PhoPal

    7. compete with the iPad in the eBooks market without develop its own iPad

  • Vl

    How about give Free Kindles to those who already own Kindles as a way of thanking them for their business and here have a Kindle to share with your reading buddies who don’t have one?

  • http://twitter.com/taysom_m taysom maytchael ®

    eu queria um :(

  • http://profiles.google.com/ryanrray Ryan Ray

    Free = bad. Free allows little to no room for promotion, allows for too much abuse and would attract allot of no-book-buyers. That book sold per kindle rate would plummet. Charging $19, $49, and $99 for various versions would make allot of sense. You could cover some the of hardware and shipping and still limit the supply of Kindles to people who aren’t afraid of spending a little money.

  • Pete

    Free will never happen.  Free means no skin in the game for the buyer, so everyone will order one just to get one.  Lots of hardware going out with no book sales to accompany it.  Very risky.  What makes more sense is to charge $99, have ads, and if they want a cheaper Kindle beyond that, give book coupons for a free book.