For as long as eReaders have been around, it seems at times, people have complained that they aren’t available for under $100.  They’re finally getting there, with the Kindle available for as little as $114 new.  We might even see a $99 Kindle by the end of the year.  An important question to ask the people who came up with this number might soon be “Is that before or after tax?”

There is obvious competition between online retailers and the brick & mortar set over taxes.  While it is technically true that somebody buying a Kindle on Amazon.com should be paying the same taxes as somebody grabbing the same product from the local Best Buy, it isn’t surprising that most customers somehow forget to file the forms to pay those taxes at the end of the year.  These stores aren’t the only ones affected, of course.

Most states have begun to take notice of the problem, with some targeting Amazon directly due to its prominent status and high sales figures.  It’s a matter of hundreds of millions of dollars per year in revenue that the state governments rightly feel they should have access to.  Amazon’s response, which is either due to the inconvenience of keeping up with unendingly complex local sales tax interactions and iterations or due to the fact that it makes their store more appealing to customers to be able to avoid sales tax (depending on your current level of cynicism and trust of a major corporation’s word on the matter), has been to withdraw their physical presence from nearly any state that has tried to enforce collection requirements on them.

Now, in an arrangement with the California government, not only will Amazon not be pulling their presence from the state, they will be working openly to resolve the issue of sales tax on inter-state commerce due to the rise of the internet.  There’s a bit of back story to the arrangement, with both the state government and Amazon making threats over the issue, but essentially it seems that a compromise was reached.  Amazon, and online companies in general, will be given until July of 2012 to persuade Congress to adopt some form of nationwide measure for the collection of internet sales tax.  Should this not come to pass, there are fallbacks to allow for California to collect beginning in 2013.

While it would seem at first glance to be not in the company’s best interest to cooperate, they have simply gotten too large to avoid notice at this point.  Increasingly, Amazon will be singled out as iconic of the problem with online retailers.  The only safe path for them will be to seek a system that can catch their competition on all levels in the same net, to keep anybody from getting a major advantage.

The knowledge that this was coming could be one pressure that has pushed Amazon to focus on digital media distribution recently, giving them products that cannot be conveniently purchased locally.  Whether or not that is the case, however, it seems a safe bet that Amazon won’t be driven out of business by the inconvenience of it all or the price bump that customers should be paying for already anyway.

There are any number of reasons to pick yourself up a Kindle, from convenience of transportation to instant 24-hour delivery of all new book purchases, but let’s take it down to the basics for a moment.  Assuming that you have absolutely no concern besides the direct tradeoffs with paper, how much do you have to read before your Kindle has justified itself?

Pricing

We’ll make the somewhat depressing assumption that you read nothing but current bestsellers.  I sincerely hope this isn’t the case, of course, but it makes the price estimation easier for me and negates the obvious point of free books that you should already be aware save you money.  Looking through the top 15 bestselling new hardcover book releases in the Amazon.com store(not the Kindle Store since that might indicate a customer predisposition toward discounted books), there are 13 books that the Kindle saves money on, one where the price is even based on pre-order discounting, and one book that is not available in Kindle format.

The actual average savings on those books that are available is around $2.47(ranging from $0.98 to $5), but for the sake of argument we can round it down to $2.  Always better to err on the side of caution.  This means approximately 58 Kindle books purchased during the life of your Kindle device before it has saved you money, if you pick up the $114 Kindle WiFi w/ Special Offers.  Now, I’m aware that reading five books per week is abnormal so my average doesn’t really play into this.  For the sake of argument, it seems safe to assume a conservative pattern of finishing a book every two weeks.  That would mean that you have to own a Kindle for a little over two years before it saves you any money, assuming this level of consumption and no taking advantage of special offers or hunting for savings.  Not unreasonable, if perhaps more than some would like.  These things do work pretty much forever if you take care of them.  It also might be worth knowing that Kindle owners are said to buy books at more than three times the rate of paper book customers, which speeds things up a bit.

Impact

Another major concern that has come up before is the environmental impact of eReading.  While there is definitely a lot more that goes into the manufacture of an eReader like the Kindle than ever would in a paper book, there is more than that to take into account. Between production, transportation, storage, shipping, and all the other associated fuel costs, each book creates a noticeable amount of pollution.  The question is where these numbers cross over.

Last year, in reference to Kindle 2 production, a report came out on the impact of producing Kindles compared to that of books which said that a Kindle creates a bit over 20 times as much pollution as a book in its creation.  You could always assume that Amazon has gotten more efficient in their production with the next generation of the device, improved processes being good at that sort of thing, but let’s ignore that speculation and focus on what numbers we actually have.  Round that first estimation up to 30 books worth if you want to account for the impact of charging your Kindle and I would be willing to bet that there are still very, very few people ever to own an eReader who didn’t manage to offset these totals.

Putting aside used books and libraries, since if you buy used books then you already know the advantages and the interaction between libraries and Kindles is in flux at the moment and hard to judge in the long term, picking up a Kindle, or any eReader, is just generally a good long term investment for you and the planet.

Well, it’s August again.  That means it is definitely time to get things ready for the upcoming school year for all those parents out there.  Normally, this is where I would come right out and say “Hey, buy them a Kindle and save money in the long run!”  We’ll consider that a given for all the usual reasons like pricing and saving on precious and increasingly overused bag space and move on to why this year provides some interesting factors to take into consideration.  It’s also a great way to encourage a little bit more reading in kids who are otherwise bombarded with far too many other attention draws to consider it time well spent without something extra to make it appealing.

The pricing on eReaders has gotten to the point where, pretty much across the board, they are affordable as replacements for the sort of fiction that usually comes up in schools.  When you are used to paying $7.99 per book for something you can get on a Kindle for a dollar or even for free, the device pays for itself pretty quick.  The same is true of the competition as well, naturally.  Right now, as far as school use goes, I would consider both the Nook Simple Touch and any of the Kindles as ideal for the purpose.

The most important factor, aside from text pricing and availability which are fairly universal as relates to what might be required in these circumstances, is durability.  Ideally, you don’t want to have to replace whatever you go for any time soon since it can take the better part of a year for the savings to offset the purchase price unless your child is a big reader. The new touchscreen Kobo isn’t bad, but it feels a bit flimsy by comparison with others.  Both the Kindle and Nook at this point are pretty equally rugged and have a large variety of cases available for protection and personalization. Do not skip getting a case, if you can help it.  These are generally solid devices, but even an inexpensive case like those in the Marware Eco-Vue line is enough to save from most wear and tear taken in transit and even buffer against short falls that would otherwise destroy the screens.

If neither eReader option is quite what you are hoping for, it might be a better choice to hold off on a purchase entirely, for once.  Amazon has two new Kindles on the way, according to seemingly accurate reports.  While they will not be making it in before the beginning of this Fall Semester, being October releases, there promises to be an introduction of touchscreen technology and possibly even a price drop even beyond what has been happening recently with the Kindle in general.  We may even see the first in the new line of Kindle Tablets, making possible all sorts of new uses including the replacement of textbooks.  That latter point, of course, won’t apply to most pre-college students, but it might be important for kids who are near to graduating and moving on.

I’ve been giving some thought to the implications of the still fairly new Kindle w/Special Offers as far as directed marketing goes, especially in light of the increasingly common speculation about Kindle Tablet PCs. The fact that this made such a splash, both in terms of controversy and in its success, only serves to emphasize the importance of the concept they are dealing with. It seems like Amazon is in a good position to capture the attention of huge numbers of deal seekers, and that there is some reason to believe that this is exactly their intent in the near future.

We know that people get excited about a good deal, even when it is on something they don’t necessarily need.  The site Groupon has become amazingly popular recently for providing exactly this sort of deal.  You sign up, log in, grab the deal of the day in your area, and likely end up making a purchase that would otherwise either have never occurred to you or been dismissed as wasteful.  They basically rely on the fact that they can localize the deals to the point where hundreds of communities have something interesting going on in their area at any given time.  It isn’t exactly a new concept, but it can be powerful when properly executed.

Amazon is in a position to take a swing at something like this from multiple angles at once.  The most obvious approach is through the newest Kindle.  You have to have an Amazon account to use it in the first place.  Amazon has, as a result, potentially detailed information about the purchasing habits of just about any of these customers and can use something along the lines of their recommendation system to personalize deals to individual tastes.  This is on top of the more widely ranging deal options.  Already we’ve seen things like the $20 Gift Card for $10, which you can’t really go wrong with but which also guarantees Amazon a sale that might not otherwise have taken place.  They also made the acquisition of popular deal of the day site Woot.com last June that offers a framework for even more impulsive buying opportunities.  All of this is in addition to the Gold Box Deals, sales, and otherwise plentiful discount opportunities to be found on any given day on the Amazon.com website itself.  There’s a lot going on here.

If at all possible, I expect to see this concept extended to the upcoming Kindle Tablet as part of the most basic experience of using the site, whether it focuses on media, app sales, or simply referrals.  The success of such an effort would be exactly the thing to allow Amazon to undercut the competition on purchase prices without putting themselves at a disadvantage.  While I don’t expect it will be nearly this amazing, I doubt anybody would mind getting the occasional special offer screensaver on their Kindle Tablet if it means that they get iPad-like functionality for less than the cost of a Nook Color.

Early on, analysts were guessing that the Kindle had about 5 million sales in its 2010 future.  Overall, an impressive gain after Amazon(NASDAQ:AMZN) managed about 2.4 million last year (according to anonymous report since Amazon doesn’t disclose sales figures on this). Current estimates, however, have the projection set at an even more impressive 8 million units by year’s end.  We obviously knew things were going well when we heard in October that the new Kindle, only released in July, was already outselling last year’s fourth quarter Kindle figures by a noticeable amount, but the numbers are even more exceptional than anticipated.

It’s been an interesting year for eReaders in general.  The Kindle‘s chief competition, the Nook, went color(perhaps prematurely, perhaps not, depending on your point of view), the iPad has successfully carved a huge place for itself in the portable computing marketplace and paved the way for an entire Tablet PC industry in the process, and eBooks have become so commonplace that it is actually harder to find something with a screen that you can’t read on than it is to find a way to read your new book.  There was some concern expressed, quite loudly at times, that the stand-alone eReader was a thing of the past with the coming of the tablet PC and the Kindle vs iPad debates.  Some people were convinced that two such devices couldn’t coexist.  This has obviously not panned out, in spite of Apple’s impressive sales figures since the April debut of the iPad.  It seems clear that the demand is only going to grow for some time yet.  As for the Nook Color, time will tell.  It’s certainly a neat addition, even if some see it as less than ideal for its primary purpose, and given how great the Kindle vs Nook competition was as a spur for development in the eReader marketplace, we can hope that it will do at least well enough to stay in the game.

What makes this whole trend even more useful for Amazon is that the Kindle isn’t their only means of distribution.  Even for those who don’t see a use in having something quite so narrowly focussed, you can’t avoid seeing the Kindle App line coming up wherever you need it.  Projections put annual sales of eBooks at 2.8 billion dollars within the next five years, according to analysts.  Right now, it looks like the biggest slice of that is heading through Amazon, whether to Kindle owners or not.  While the format might not be what some people would prefer, Amazon choosing not to support the popular EPUB standard, this makes Kindle Editions one of the safest ways to be certain of your eBook purchasing.  It’s just that little bit of extra reassurance if you know that you never have to worry about losing your files over a hardware crash or wrongly deleted folder, right?

Basically, an all around great year for both the Kindle and the eBook industry in general.  Hopefully projections bear out and we have even more to look forward to in the near future.  Reading’s never been so convenient or accessible.

Kindle 3 Weight

I’ve had some time to play around with my new Kindle 3 and to read what other users are saying so now I’m ready to publish this follow up with some of the information I’ve recently gathered of forgot to publish before.

In case you haven’t read reviews I’ve published before, here they are:

• Original Kindle 3 review (July, 29th)В - largely based on official Amazon press release, other online sources and personal speculations.
• Kindle 3 review round-up from online media (August, 6th) – summary of opinions from sources like CNET, PCWorld etc.
• Kindle 3 review (August, 28th) – my personal hand-on review of the device with battery life estimations, screen contrast comparison, partial disassembly and other useful bits of information.

One thing I would like to mention specifically is the weight. I weighted the device on a digital scale it showed 8.2 oz. At first I though that my scale was off but then reports and pictures started surfacing on forums indicating that Kindle 3G + WiFi weights as low as 8.1 oz and Kindle WiFi as low as 7.8 oz. Official Amazon specs indicate 8.7 oz for 3G + WiFi and 8.2 oz for WiFi only version.

Kindle 3 software

Kindle 3 runs software version 3.0 (515460094) and has serial number starting with B006 marking it as new hardware series. No surprise there. In the past Amazon has stopped updating 1.* firmware for first generation Kindles once Kindle 2 came out. Hopefully this is not going to be the case with Kindle software 2.* despite the fact that apparently Kindle 3 will clearly outsell Kindle 2 soon enough (more on that later).

Kindle 3 is much more similar to second generation Kindle than Kindle 2 was to original Kindle 1. Kindle 2 user base now is much larger than Kindle 1 user base was when Kindle 2 came out. It would be easier for Amazon to maintain one code branch than two (since it seems that 1.* software development is essentially non-existent). Unicode characters have been added to 3.0 software. Eventually books in Kindle store will start using these characters. It would be very bad PR for Amazon when people with older Kindles will start buying these books only to see empty boxes instead of characters. This is why I guesstimate that eventually 3.* software will make it to Kindle 2 and older Kindle DX devices. Perhaps it would be software 3.1 or 3.0.1

There are several new features in Kindle software 3.0 that I forgot to mention in the original review:

• Device password. You can set a password that will be required to use the device every time it’s turned on. Without the password it’s impossible to access Kindle UI or Kindle USB drive. It’s pretty useful if you keep sensitive work related documents on your Kindle. In case you forget your password, it is possible to completely reset the device deleting all stored information in the process.
• Collections. Although these are not exactly new and have been around before Kindle 3, I’ve never taken the time to write about them and would like to point this feature out. Historically all Kindle books were piled in one flat list that was sorted by last-read date, title or author. Best way to navigate it was searching. Several months ago Amazon has introduced collections as a way to organize your library. A collection is similar to a tag as one book can belong to several collections (Sci-Fi, H. G. Wells, “Favorite Books”, etc)
• Manually setting device time. Previously Kindle relied on time information from 3G wireless network. Now you can manually set Kindle clock if you have WiFi-only version, don’t have wireless coverage or live on a different time than your GSM provider.

Kindle 3 Unicode support

Kindle 3 finally got a font with broader range of Unicode characters. These include Cyrillic, Simplified and Traditional Chinese, Korean and Japanese. I’ve done some quick tests and to me it looks like characters are there. However I didn’t do a full scale test of all possible characters from these planes. Some people on forums and in comments complained about poor support of Chinese and Korean but so far there has been little specifics.

There were some claims that non-Latin characters display the same in all typefaces. I’ve verified it and it does seem to be true for Asian characters and definitely not true for Cyrillic. Here are some screenshots showing different typefaces in Russian text.

Kindle 3 Russian Typefaces

By the way, good way to download and format Unicode text files so that paragraph breaks would display properly and lines will not needlessly wrap is eBook Text Formatter tool that I’ve created a while ago. It still works great.

Kindle 3 WebKit-based browser

New web-browser in Kindle 3 is great. It can event load and run desktop AJAX version of Gmail (however using mobile version at https://m.gmail.com/ is still recommended as it’s much faster). Some users reported problems with browser or apps. Kindle software would occasionally crash. It is generally believed that it’s caused by background indexing process running alongside browser. Whenever new book, text file or document is downloaded to Kindle, it is indexed to provide almost instantaneous search results. This process is resource intensive and may conflict with web-browser or word game applications that are available for Kindle.

Therefore it is recommended to refrain from browsing while Kindle indexes new books. Usually this process is completed within minutes of downloading a book or a document. If you download hundreds of books at once it may take hours and seriously drain your battery. 75% overnight battery drain has been reported after downloading 100+ books.

In case your Kindle browser stops working completely (“launch browser” button does nothing or causes a crash), restarting your Kindle will fix this problem. To restart your Kindle press “Home”, “Menu”, select “Settings”, press “Menu” and select “Restart”. In case this doesn’t work, holding the power button for 30 seconds and then releasing it does the trick. Please note that Kindle will not restart while you are holding the button. You need to press the button, slowly count to 30 and then release it. Within several seconds your Kindle will reboot.

Kindle 3 User Reviews

For some reason there were no user reviews for Kindle 3 on Amazon website until Saturday afternoon. Perhaps they were held in the pipeline for some reason. Now that reviews are finally in, you can check them out here.

For Kindle 3G + WiFi and Kindle WiFi there are 139 total reviews at the moment. Of these 104 gave Kindle 5/5 stars, 24 gave it 4 stars, 3 gave it 3 stars and 8 people were completely unhappy with their purchase and gave Kindle 3 one star. Since there so few one-star reviews, I took a look at them individually and here’s the scoop:

I would like to start completely quoting review by Roger: “The ipad has so much more functionality, why anyone would want to limit themselves to a Kindle is beyond me.” It doesn’t look to me like Roger ever had or will have a Kindle. Nonetheless he’s entitled to his own opinion and we’ll leave it at that :)

3 people seemed to have received defective devices. I can understand how this can lead to a bad review, however every device has a potential of being defective. When I started building servers of the first batch of 8 HDDs from a major manufacturer 3 failed within 24 hours of stress testing. Bad luck, I guess because since I replaced these 3 and installed dozens more like them I’m yet to see a single hard drive fail. So given the overall volume of Kindles shipped, 3 reviews about defective devices is pretty good.

One reviewer was extremely unhappy with quality of Korean font glyphs. Kindle 3 Unicode support is something that I want to investigate further. I’ll definitely report on it once I have the full story.

There is one bad Kindle 3 review dealing with new smaller buttons. Personally I liked Kindle 2 buttons more as well. New controller layout takes getting used to and judging by scarcity of negative reviews, benefits like WiFi and better screen greatly outweigh discomfort from smaller buttons. By the way there is a good old trick for reading from Kindle without having to use buttons at all: start text-to-speech, adjust the speech speed to your reading speed and then mute the volume. Pages will flip automatically.

User with “Book Worm” alias gave new Kindle 3 one star because he purchased Kindle 2 right before Kindle 3 was announced so the user ended up paying $259 for and older device rather than getting new one for $189. I can completely understand this frustration. Unfortunately Amazon doesn’t have a specific schedule of “surprise” product launches like Apple when everyone expects new iPhone to be announced in Spring and release in the Summer. Such things happened in the past when international Kindle or graphite Kindle DX was released. While it’s unlikely that anything can be done in this particular case, I would like to note that historically Amazon Customer support was quite flexible on 30-day return period. According to comments from several users you can get a refund (if the price dropped) or return your Kindle for a newer one up to one week after 30 days have passed from your purchase. But please don’t tell Amazon that I told you this :)

Final bad Kindle 3 review has something to do with the way user set up his/her account rather than with the device itself so I’ll not comment on it.

For these 8 negative reviews there are 128 positive reviews from people who are mostly extremely happy with their Kindle experience. Some highlights include:

• Small size and weight are mentioned in almost every positive review (and even some negative onces)
• Improved screen contrast and fonts is the second biggest thing mentioned in positive reviews.
• People love new low $189 price point of Kindle 3G + WiFi and $139 of Kindle WiFi.

In the future I’ll do a more detailed analysis of positive reviews and publish the stats here.

Kindle 3 Sales Numbers

On August 25th in the press release announcing early shipments of Kindle 3, Amazon also revealed that Kindle 3 is the best-selling product by four-week sales:

(NASDAQ: AMZN)в_”Amazon.com today announced that more new generation Kindles were ordered in the first four weeks of availability than in the same timeframe following any other Kindle launch, making the new Kindles the fastest-selling ever. In addition, in the four weeks since the introduction of the new Kindle and Kindle 3G, customers ordered more Kindles on Amazon.com and Amazon.co.uk combined than any other product, continuing Kindleв_Ts over two-year run as the bestselling product across all the products sold on Amazon.com.

In the summer and amid slowing economy Kindle 3 was able to beat international Kindle 2 launch that was tied to the holiday shopping season last year. This is quite impressive but not surprising when one considers improved specs and features, price that got slashed in half and amount of customer awareness generated by previous launches.

Well, the internet is abuzz today with talk of a recent report by a Citi analyst declaring the Kindle effectively dead in the water in the long haul.  Now, if you accept the validity of the analysis of where things stand today, and let’s say for the sake of argument that we do for the moment, there’re still some problems to be addressed.  Here’s some details in the wording that a lot of people aren’t looking at very clearly.

The analyst observes that the “Kindle currently enjoys a price and selection advantage over the iBook platform” but ominously follows it with “it’s hard to see why the gap won’t narrow over time.”  It’s difficult to see where the negativity is coming from here.  He states that Kindle is in the lead and then adds some doomsaying to the end of the sentence.

The same basic theory ends up applying to the point by point comparison.  The analyst’s argument seems to hinge on the idea that Amazon(NASDAQ:AMZN), clearly a front runner in the mainstream ebook market and a fairly innovative company in general, is going to leave what systems it has in place as they are now and hope for the best.  I get that Apple(NASDAQ:AAPL) is a great company and that many people feel they’re inevitably going to take over whatever market they approach.  If that’s really the case though, we can do without the spins on the facts in the meantime, don’t you think?

Personally I’m used to updating software. Pretty much every week one or another piece of software on my PC updates – be it Windows itself, the antivirus, iTunes or whatever. I’ve subconsciously come to expect the same from Kindle. And at first Kindle firmware did update quite frequently:

• February 23 (day zero) – Kindle 2 is released
• March 7 (12 days later) – Kindle software 2.0.1 is released
• March 19 (12 days later) – Kindle software 2.0.2 is released
• April 20 (32 days later) – Kindle software 2.0.3 is released
• September 3 (136 days later) – Kindle software 2.0.4 is released but it takes a while for this update to find it’s way to all users. Kindle DX 2.1.1 is also out but I’m yet to get mine…

As you can see it seems that Kindle 2 got several updates soon after release and then there was silence.

Early update rush was caused by bugs in the new software. One or two updates were caused by law suit (Text-to-speech, and Orwell book deletion). However, note that none of the updates introduced new features. I guess Amazon sticks to the policy – don’t fix it if it ain’t broken.

Kindle DX and Kindle international share most of the software with original Kindle so there is little room for new critical bugs.

But most importantly, the number of Kindles in operation has exploded since the beginning of 2009. And this is probably the most important reason why we will not see many Kindle updates in the future and probably none of them will be feature driven. Amazon pays Sprint 12 cents per megabyte transferred. It would be safe to assume that Amazon gets similar pricing from AT&T for domestic traffic and a much higher price for data roaming. Average Kindle update is 2 megabytes in size. Because of the way Amazon structures the update packages, this accumulates as each subsequent update includes all previous updates as well. So first update was 2 megs, second one was 4, third – 6, etc.

6 megabytes times 12 cents is $0.72 per device updated. By some estimates there may be 2..3 million Kindle devices in operation. Let’s assume that 80% of devices are within wireless coverage (although in reality this number can be much higher). This adds up to $1,440,000 to $2,160,000 per software update deployment and increasing with every update version. And this is just to update domestic Kindles. I wouldn’t even want to think about the pricing to worldwide distribution. Also I wouldn’t want to be the software developer who makes a critical bug that causes an update or that software developer’s boss for that matter…

Given these numbers I don’t believe that Amazon would release update unless they have a very strong reason to do so. Strong reason being a court order or something else of this sort. This more or less addresses they questions of where Amazon will add folders, PDF support for Kindle 2 or official Unicode fonts for that matter via an update. The answer is a definite NO.

On the issue of fonts I’m most sure since Unicode fonts in the updates that I use (that add only partial support without all of the font styles) are 1.5..3 megabytes. Proper Unicode support can easily add up to 10 megabytes. So this would mean millions of dollars spent with potential to spend more millions in the future and near zero return of investment since although many people would like to have this feature, for most of them it’s not a deal-breaker (especially since on Kindle DX you can have any kind of fonts via PDF files). The few books that have non-Latin characters that Amazon sells use Topaz format to embed the extra glyphs that they need. So adding Unicode fonts would help customers read books that Amazon doesn’t sell. In this light the question about Unicode fonts via an update for existing devices is a no-brainer.

It is possible that this support would be included in Kindle 3 or whatever else the next generation Kindle will be called since in this case the cost for Amazon is just licencing fee for the fonts.

The Kindle is great for what it does, but it is by design somewhat limited to Amazon’s vision.  I’ve written on this blog before about allowing third party developers on the Kindle.  It looks like with the upcoming holiday season, talk over whether Amazon should release an SDK has started again.

New York Times makes the argument that since Amazon won’t likely release any new hardware (Both the Kindle 2 and DX are new enough that they’ve never been holiday gifts), it may be beneficial for them to find some new way to innovate before the holidays.  Creating an SDK where anyone could make and sell applications would not only increase the Kindle’s possibilities, but also give it a sort of iPhone recognition for innovation.

Of course, Amazon hasn’t already done this for a reason.  Perhaps over the worries of the publishers, or fears of piracy that could result from opening up the ecosystem, Amazon has not allowed third parties into the Kindle.  But here is where the iPhone example really applies.  iPhone apps undergo a nearly draconian review process, yet the iPhone and its apps continue to be a commercial success.  Amazon could easily decide to create a Kindle app marketplace where they vetoed any programs that, say, abused the wireless or allowed ePub on the device.  Some people would definitely gripe about the restrictions, but the sdk would still be an overall success.  Like the NYTimes article suggests, apps could be created for medical or other specialized niches.  The apps would be in high enough demand and would still be okay with Amazon.

One easy entry into Kindle apps could be board games like chess, go, checkers, monopoly, etc. These can be computationally light, especially if you are playing against the Internet server or another human, cause minimal wireless traffic and look well on Kindle’s eInk display. Right now there are two games on Kindle DX – minesweeper and Gomoku. More can be easily added – either free or for a charge. The ecosystem need not be as open as iPhone from the start and can still bring Kindle success. Lets not forget that even for iPhone it took a year for App store to materialize.

Will this really happen? In my opinion it’s a coin toss. Amazon has to come up with something to generate some Kindle buzz this holiday season when competition is stepping on it’s heels. And I’m pretty sure they will. But it might not be an app store.

Also, just wanted to say thanks to the New York Times for linking to Blog Kindle.  Hello any new readers!

Slate has an article about the best way to beat the Kindle in the eBook market.  Their arguments are fairly compelling.  They compare the eBook market to mp3 players, as both represented the transition from traditional media to a digital form.  In terms of eReaders, the Kindle has the role of the iPod.  Both devices broke out early in their respective markets due to a cleverly designed service and smart marketing.  Since no competitor was ever able to touch the iPod, Amazon’s competitors need to figure out where Apple’s competitors went wrong.

The article comes away with 2 main suggestions:

1. “Beat the Kindle on features, not on price.”  The iPod stayed ahead by continually reinventing itself.  An eReader that completely dwarfed the Kindle in features would have a chance.  Maybe. Except for…

2. “Service matters more than the device itself.”  The Kindle beat the Sony Reader because it had the Kindle bookstore.  Any competitor will have to beat the entire platform.

Amazon has made a name for itself as a leader in online retail.  It’s only fitting that when they developed the Kindle, they would use their existing marketplace to sell the device.  The Kindle has no doubt been very successful at penetrating the eReader market, but a new report from Forrester Research suggests that Amazon’s online home may cripple Kindle sales in the future.

Forrester argues that the Kindles success thus far has been due to the consuming practices of early adopters.  eReaders are still in relative infancy and have yet to be accepted by the world at large.  Consumes who have bought readers are those who jump onto the newest technology, a group that is already prone to do much of its shopping online.

The next big wave of eReader purchases, according to Forrester, isn’t going to come from people who are less likely to do the majority of their shopping online.  If Amazon doesn’t start putting the Kindle in more traditional retail outlets, their lead in the eReader market could dwindle.

I think the report does have a point.  When someone walks into a Borders store, they see a Sony Reader on display.  Soon, Barnes & Noble stores will be showcasing display units of the Plastic Logic Reader.  With the Kindle being sold only on Amazon.com, it’s impossible for a potential customer to simply stumble upon a display model.  Think of your mother buying an eReader and you will see what kind of a difference this makes.

I’ve already pointed out in the past that airports may be a great place to sell Kindles as you can immediately start downloading books to read for your journey.

Financial services company Credit Suisse has issued a report that predicts eReader ownership by one third of adult book readers within 5 years.  This would be a huge jump from their estimate that only 1% of the target market owned eReaders in 2008.  It should be noted that this report is specific to the US.  Also, the target demographic of literary adults that Credit Suisse is referring to consists of 42% of Americans 15 or older.

Amazon in particular is predicted to do well.  Credit Suisse believes the number of Kindles sold each year will skyrocket, until Amazon is selling 8.5 million a year in 2014 (equaling $1.8 Billion in revenue).  As the report seems to have been completed before the recent news about Barnes and Noble’s upcoming eBook store, there’s no prediction as to how they may make a dent in Amazon’s profits.  Credit Suisse has, however, jumped on the Apple tablet speculation bandwagon and suggested that it would have a major effect on the eReader market.  I’m not sure if I agree with that analysis, as a tablet computer and an eReader aren’t really the same thing. People use eReaders because they simulate a normal paper reading experience, not because they want a full out computer. We’ll have to wait for it come out as Apple has a way of creating surprisingly usable revolutionary devices (iPhone being the most recent example).

Overall, there’s nothing too surprising about Credit Suisse’s report.  At this point, I think everyone expects eReaders to be poised to take over the publishing industry.  What’s incredible is how fast Credit Suisse expects it to happen.  One third of the market in 5 years?  An adoption rate like that is equal to a full out revolution in the way people look at books.

According to nielsen wire, average Kindle user earns Sprint $2/month. Given 12 cents/MB price this yeilds 16.6MB on average downloaded by Kindle user per month. This includes book purchases, periodicals, blogs and web-browsing. It’s hard to speculate as to how much each of these activities contributes to the total number… My guess would be that web-browsing and blogs are negligeble at this point. As to books vs. periodicals, I’d guess that average Kindle user subscribes to 1 periodical and the rest are book purchases.

Another thing to consider are software updates. In little over 3 months since Kindle 2 was released there were 3 software updates totaling 12 megabytes in size. Cost to Amazon – $1.44. This is 24% of $6 wireless charges for this time period. Each update contains several packages – one for each previous version of the software. This makes it possible for users to skip updates and jump from version 2.0 to 2.0.3 directly, but it also bloats future updates. If these numbers are right updates will become a serious problem for Amazon in the future. We’ll see…

Recently MediaShift blog mentioned some interesting numbers related to Kindle wireless data pricing:

> Avg. file size = 1.2MB
> Bandwidth cost = 12 cents MB
> Selling price = $13.99 month
> Monthly bandwidth cost = $4.32

I tried really hard to track down the source of this information but all I could find was indirect hearsay statement confirming it:

According to a reliable source in the know, The New Yorker’s Kindle split is divided 33% New Yorker, 33% Amazon, and 33% wireless carrier.

At first 12 cents / MB may seem a little steep given that most mobile companies nowadays offer 5GB wireless broadband plans for $60/month (1.2 cent / MB). However bandwidth economics are a bit more complex. Sprint already has a 3G network and costs of operating it are fixed whether it’s utilized as 1% or 100% capacity. Therefore it’s in the best interest of the carrier to sell all of the bandwidth even if some of it is sold at a huge discount. Most individual users would use only a fraction of these 5GB and will subsidize users who use it all. With wholesale customers as Amazon there is no subsidies and Sprint would charge highest price Amazon would be willing to pay.

Assuming 12 cents/MB is correct here’s what we get:

• Average Kindle book is 0.7..2MB – Sprint gets paid 10..25 cents per download. Download doesn’t mean sale as customers can buy once and download multiple times.
• Average Kindle book sample – 0.2..0.6MB – it costs Amazon 2..7 pennies every time you download a book sample. This is comparable to click price in pay-per-click advertising and given that customers “target” themselves, conversion rate should be very high
• WSJ subscription – numbers are very similar to ones in MediaShift example – Amazon pays 4…5 USD per month for delivering the content.
• Personal document conversion – you pay Amazon 15 cents per megabyte, Amazon pays Sprint 12 cents. Consider that resulting document same size or smaller than then original because of data compression and you get a sustainable revenue model for Amazon even in the unlikely case of bandwidth price going up.
• Web browsing – free for users, same 12 cents per MB to Amazon. But how many customers really use it? I don’t. Whenever I need to browse the web on the go I turn to either iPhone or netbook if WiFi hotspot is nearby.

In 2002 1 megabyte of wireless data used to cost more than a dollar. If this trend continues, wireless data costs will stop being a significant factor in Kindle economics 3-4 years down the road.

However with current prices it’s quite possible that Amazon may get unhappy about Savory hack that allows users to download large PDF files and convert them on the fly directly on Kindle.