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Does Kindle’s embrace of cell phones spell trouble for news orgs?

To me, the most interesting element of Jeff Bezos’ Kindle announcement today was that Kindle content will be arriving on other devices soon. (Bezos only hinted at it by referring obliquely to “other devices” during his presentation, but Gizmodo confirmed it.) One presumes you’ll soon be able to download a Kindle app for your iPhone or Android phone, with Blackberries and other smartphones not far behind.

That decision could end up being more important to the company’s fortunes than the new device announced today — which, while a nice upgrade, doesn’t seem to radically change the calculus of whether or not to buy a Kindle. And it could have big implications for news organizations looking to the Kindle as a potential savior.

Business schools have long taught the razor-and-blades business model, in which a high-value good (like a razor) is given away or sold cheaply — with the idea that creating a world with a lot of razors will create big demand for the sale of razor blades. Give away the razor; make millions on the blades.

Apple has made a gazillion dollars by doing the opposite. They sell lots of songs through the iTunes Music Store and make not that much on each. Most of each song’s 99-cent price tag goes to the record label or to overhead. But if people are buying music on iTunes, they’re much more likely to buy a portable device to play those songs on — an iPod, a device where Apple makes a mint on each sale. Give away the blades; make millions on the razor.

Either way, the company is really in two related but discrete businesses: a device and a distribution channel through which to sell other devices.

It’s unclear how, exactly, Amazon is making money on the Kindle. It charges big money for the device, but e-paper tech is expensive enough that it may not be making much, if anything, on the device. (If you’ve seen reliable estimates of the manufacturing cost of a Kindle, speak up in the comments.) And the publisher/Amazon share of ebook revenues aren’t, to my knowledge, public either.

But putting Kindle readers on cell phones would seem to, in one swoop:

— massively increase the potential audience for Kindle ebooks, and
— massively decrease the demand for the Kindle device itself.

If I can buy and read Kindle ebooks on my iPhone, the chances of me paying $300+ for another gadget to carry around just dropped substantially. (Especially if there’s an iPhone-like device with a larger form factor in the works.)

For Amazon, that might be a perfectly reasonable trade-off. Owning the de facto standard for ebook distribution is a very valuable thing, as is having a huge potential customer base.

But I wonder if it does much good for news organizations.

After all, the newspaper hope for the Kindle is that people will be willing to pay $10 a month (or so) to subscribe to their news on the device. It’s the device that’s the key part of the equation; people are already used to paying $0 for news on their PCs or their cell phones. The value proposition for the Kindle is that this is a unique product tied to the device, and thus worth paying.

But if Amazon is willing to give up some market for the Kindle device in exchange for a larger Kindle distribution channel, then where does that leave news organizations? After all, if you want to read The New York Times on your iPhone, you can already go to www.nytimes.com or use the free NYTimes app. You don’t need to pay $10 a month for that. News, unlike ebooks, already has a working distribution channel: the Internet. A Kindle app on a cell phone would do wonders for ebook sales, but it could eliminate a lot of the appeal of news products sold through the service.

Obviously, it’s too early in the game to know what kind of implications this decision could have — we haven’t even seen the first app. But I suspect this decision will go down as an unhelpful one for news organizations.

                                   
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Ann Marie Lipinski    July 24, 2014
The Nieman Foundation for Journalism at Harvard wants to hear your idea for making journalism better. Come spend a few weeks working on it in Cambridge.
  • HereAndNow

    Magazines should still do OK in this model. I can imagine subscribing to Business Week or Rolling Stone, etc. to get a packaged product I could read on my device on the weekend or while traveling.

    I think it is the “packaging” that the news organizations need to focus on, to make subscriptions more compelling.

  • http://newsafternewspapers.blogspot.com/ Martin Langeveld

    Before Kindle, there were phones and there were computers. Kindle has wedged itself in there with a separate device for separate purposes, and despite the criticisms of 1.0, it has carved out a good niche that will continue to grow, because the experience is different enough from a phone experience. They sold maybe 250,000 1.0s, of which more than 10,000 got NYT subs. NYT was available on phones during the entire time those subs were sold. If they can sell 2.5 million 2.0s and 25 million 3.0s, NYT could see 100,000 and then 1 million subs in those stages. Close to 200 million iPods have been sold, so 25 million Kindle 3.0s (or equivalent e-readers) is feasible. Bezos’s pronouncement that he wants every book ever printed to be available makes clear the scope of their ambitions.

  • David Hakala, Denver, CO

    “the newspaper hope for the Kindle is that people will be willing to pay $10 a month (or so) to subscribe to their news on the device.”

    Are you SERIOUS??? BWAH HA HAHAHAAA! Why would I pay ten bucks a month for something I can’t even wrap fish in? A Kindle device is no more portable than a newspaper.

  • http://www.niemanlab.org/ Joshua Benton

    David: More than 10,000 people already pay that ($14 a month, actually) for the NYT. Somewhere in that neighborhood for the WSJ, and lesser amounts for other papers.

  • Rudolph

    Joshua:

    As this Time article points out (and as Martin Langeveld points out above), the experience of reading on an e-reader that uses e-ink is superior to the experience of reading on a Web site or on an iPhone.

    http://www.time.com/time/business/article/0,8599,1877161-1,00.html

    This is an insight that Digital Immigrants bring from the Old World, and so it may not be as appreciated by Digital Natives who have grown up in the Web’s attention-deficit-disorder environment.

    People who appreciate this difference are willing to pay for content on an e-reader, even though they can get the content for free on a Web site or on an iPhone.

    Because the reading experience is superior on the e-reader, newspapers have a competitive advantage in today’s content oversupplied world in the e-reader format than they don’t have in the Web site format or the iPhone format.

    For this reason, newspapers should strive to drive readers to the e-reader format.

    The industry should immediately cut deals to sell e-readers that come bundled with newspaper subscriptions.

    Another way to drive readers to the e-reader format is to start charging for content on a Web site. This provides an incentive for readers to buy their content through an e-reader (or stick with print, where most of the money is still being made).

    The discussion about whether newspapers should charge for content online often focuses on the disincentive of the reader having to pay for what he’s been getting for free.

    But charging for online content also provides an incentive to buy the print product or buy the content on an e-reader.

    The post below by Edward J. Dulaney is spot on. His line of reasoning is what newspapers should be concentrating on.

    By the way, it’s really cool that I get to argue with you Harvard types since I’m not anywhere close to being in your league.

  • http://www.niemanlab.org/ Joshua Benton

    We welcome the arguments, Rudolph! We don’t pretend to know all the answers.

    I don’t argue or a minute that a Kindle is a better pure reading experience than a cell phone. But a print newspaper is a better pure reading experience than either, and we see where that’s going. I think the web shows people are willing to accept a lower-quality reading experience for a convenience. And for news, I think a cell phone is always going to be many times more convenient than a single-purpose device like a Kindle.

  • Pingback: Why the Kindle will fail » Nieman Journalism Lab » Pushing to the Future of Journalism

  • http://www.e-reader-review.com Chris Kindle

    Just came across your blog on Google. Interesting post, you bring up a few good things to think about. Good luck with the blog.

  • Carlos

    I am quite annoyed with the way businesses market their product in order to make money and really not give a damn about the consumer. I have an ebook and as I travel alot they are great than carrying books with you. But, on Amazon, the demand you to buy a Kindle, you have to registe it on the Amazon site then you can purchase the books. What about people who already have a different ebook? They can’t purchase the books.

    Well, I prefer not to purchase from Amazon because of this. Not giving people a choice!

  • http://toughloveforxerox.blogspot MichaelJ

    Bezos has said many times that the Kindle is designed for readers. As a reader, I have to say he’s got it just right.

    What keeps being ignored is that readers are niche market.

    Bezos has built his business by serving that niche market. The reality is that it is better to read on a Kindle, for many technical reasons having to do with the design of the appliance. Making content available on mobile phones will probably not affect the core market for the device.