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iPad may be saving Amazon's Kindle business model

updated 06:40 pm EDT, Tue August 17, 2010

iPad book deals helping Amazon turn profit

The launch of the iPad may have ironically helped Amazon improve the business model for the Kindle, Needham analyst Charlie Wolf found today. Amazon had previously insisted on a wholesale model that sold e-books at a loss but made a profit on the Kindle readers, but Apple's insistence on agency model pricing for the iBookstore may have done the online retailer a favor. By creating pressure on Amazon to switch its own deals at the risk of losing publishers, Apple has now forced Amazon to turn an estimated 30 percent profit on each book it sells, Wolf said.

The business model for devices is still somewhat opposed to Apple's but should still work in Amazon's favor. Since Amazon now depends on e-books rather than Kindle hardware to make money it has had to follow the classic "razor blade" model that sells the main device for little profit, or even a loss, with the expectation that high-margin content will make up the difference. Amazon noted that Kindle sales have surged following the price drop to $189, at least temporarily tripling. With little to no profit on the device, Amazon may be more successful as it stands to reach significantly more readers.

As an example, Wolf noted that even an $11 loss on the $139 Wi-Fi Kindle would only need to sell three books to the owner to recoup losses.

Apple has usually seen its app, media and now book stores as break-even efforts whose prices lean customers towards buying devices. With the iBookstore, though, it's widely believed the company was willing to raise bestseller e-book prices from $10 to $13 or $15 partly as a bargaining chip for publishers frustrated with Amazon's control of the market. Agency model pricing usually makes less profit for the publishers but gives them more control over how pricing is set, which wasn't an option under Amazon's wholesale model.

How accurate Wolf's model might be still isn't certain. Amazon has often closely guarded any of the fiscal details surrounding the Kindle and has only ever said it has sold "millions" of the devices and an unspecified number of books. Apple has been more vocal and is rumored to have caught up to the Kindle in device volume over just three months with its 3.27 million iPad sales, although only some owners ever intend to read non-web content on Apple's tablet.

By Electronista Staff
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  1. TujuMaster

    Fresh-Faced Recruit

    Joined: Nov 2009


    I like the iPad but...

    I still like my Kindle better as a reader. I think the Kindle's price point has put it in a good position to win the reader battle. The iPad is much better as a portable media device, however.

  1. RoosterJuice

    Fresh-Faced Recruit

    Joined: Mar 2010



    Well no $hit Sherlocks. Did they just figure this out now? My wife uses the kindle app on the ipad and loves it. You can even save what page you are across different devices.

  1. heyjp

    Fresh-Faced Recruit

    Joined: Feb 2009


    Kindle Reader on iPas

    I think the article is forgetting that those 3.7 million iPads are potential Kindle readers too! I have read more Kindle books on my iPad than iBooks. Way more books available on Kindle than IBooks. I always look for the iBook version first, but rarely find what i'm looking for.

    No loss on the hardware for Amazon when an iPad is sold. :-)


  1. Inkling

    Senior User

    Joined: Jul 2006


    A Kindle's Inadequacies

    The new Kindle's price and hardware attracted my interest, but reading the manual I was turned off by the hassles of getting text from other sources on to it, particularly from Instapaper. My iPod touch, bless its little heart, syncs automatically with with Instapaper and lets me purchase and read books from a variety of sources, including some EPUB library books. The Kindle can't display EPUB, making it almost exclusively an Amazon ebook reader, with the other features merely tacked on as afterthoughts. Sorry, but I'm not going to transfer documents I need to read by connecting a Kindle as a USB drive and hand copying files over. Until transferring a document to the Kindle for reading is as easy as printing to paper, I see little reason to get one.

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