How Does Kindle Fit In Amazon’s Strategy

Amazon.com sells its Kindle books below costs, at a flat $9.99 even though the publishers charge amazon.com the same price for their hardcover books.  While the devices are still not priced for the mass market, probably due to high costs, amazon.com is trying to encourage higher adoption for its eBooks. It is my theory that Amazon may not want to be in the Kindle business. There are several reasons:

  1. It is a low margin business except for Apple which found a way to sell at premium price
  2. The customers are fickle minded and hard to satisfy with designs, many a hits like Palm and iPaq have lost their traction now.
  3. The current design,  despite being a very well crafted one, is still rudimentary. There are many possibilities. This is just a start. This is a carefully chosen strategy by amazon.com, no one know how the most popular eBook reader is going to look like.
  4. amazon.com is subsidizing the Kindle books for two reasons. One to reduce total cost of ownership of Kindle devices to customers, second to increase the footprint for the Kindle format.
In the value chain of authors, publishers, distributers (amazon.com), and customers the power is shifting and the medium used for books is changing.  amazon.com, as it had always done,  is shaping its own future and not waiting for it. It is driving the new format, reduce the value captured by publishers and position itself to be the distribution medium of choice. The goal is to capture the format market and control the value chain and not the devices market. Since no one else s making such devices amazon.com took this on itself.  
If the above thesis is correct, then the logical next step is for amazon.com license the reading format and publish the reference design to have others compete in the devices market. Kindle proved the point, now it is time for it to become the “Kindle Inside”.

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