Amazon and its Kindles: witnessing a transformation

Everybody (me included in my previous posts) keeps talking about Google and Facebook as the two Internet Titans. Someone throws in Twitter. When it comes to mobile phones and tablets, people also mention Apple. But what about Amazon?

Amazon started as a book seller in 1994/95 and is now the largest on-line retailer in the World (depending on what metrics one uses, Ebay could be larger, but if we stick to how each company defines revenues, Amazon is bigger). Apparently, that’s not enough for them.

In 2007 Amazon embraced the electronic-ink technology and launched the Kindle, an electronic device with a screen that looks like paper (no backlighting, just a material that changes color). Releasing a new version each year, Amazon is now at the fourth generation and the sales (especially for the third generation) have exceeded expectations.

In the recent months, Amazon made two interesting moves:

  • They released the Kindle Fire, a device that has little or nothing to do with the other Kindles. It’s a tablet with “normal” backlit LCD display. Not nearly as suitable to read books as the other Kindles are. While it is Android based, the Google OS is buried deep under layers of proprietary software, including Silk, the Amazon browser. In order to make the web-surfing experience smoother, Amazon sends the data to Silk through their own servers, which optimize it and compress it to make the navigation from a not-so-fast connection on a not-so-fast processor smoother and faster (they call Silk cloud-accelerated browser). The obvious benefit is that Amazon knows everything the users do when they are on Silk. Neither Apple on iPhones nor Google on Android had ever done anything like that (although a similar solution was adopted by an independent browser for mobiles, Opera Mini). The price of this device (199 USD) is extremely low compared to other tablets. Some even argue that the price is lower than the manufacturing cost
  • The fourth generation of Kindle is pretty much low end and low priced. While on the market devices with higher resolution (such as the Google iRiver Story HD) and color electronic ink displays (such as the Hanvon e920), Amazon kept the display at 600 x 800, with 16 shades of grey. And they hit the market with a fairly low price (79 USD for the Basic Kindle 4 with ads as screensavers – which explains why Amazon never made it possible to customize the screensavers on one’s Kindle).

It’s pretty clear that Amazon wants to drive volumes up. Why are they so eager to do so that they are even willing to bear a loss (if the estimates are correct)? The easy answer is that they want to use their devices to sell content: the more Kindles there are around, the more books get sold. Same goes for movies on Kindle Fire. Some argue that there is another reason: Amazon wants to track consumer’s behavior in order to collect data about shopping habits and optimize the customer experience at their retails stores.

This second element can be brought to the extreme: Amazon is trying to integrate vertically. I mean that customers reach on-line retailers directly or through other “lead-generating gateways”, such as search engines (if they search for stuff) or social network (if they see what their friends have bought and want the same). The “gateway industry” is a lot more concentrated than the online retail industry. Google and Facebook alone make up for the vast majority of these “lead-generating gateways” and retails risk getting squeezed by the giants . It’s pretty natural that Amazon, the top dog of online retail, is trying to take a seat at the “gateway table” too. This is another function of Silk and of the Kindle Fire in general. Amazon wants to control the device you use to get online. Let’s not forget that Amazon is the owner of Alexa, one of the first companies offering Internet statistics. The Amazon guys have seen the value of gathering data about user behavior for years (Alexa was acquired in 1999).

So, let’s see what happens, with movies from Youtube to Kindle Fire and Amazon successfully tasting a new pie.

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