After Amazon.com (NASDAQ: AMZN) slashed the price of its Kindle e-reader to $189 from $259 after the launch of the iPad in April, the company was overwhelmed by demand. Consumers have snatched up the innovative gadget at a breakneck pace, and have been downloading record amounts of e-books from Amazon’s online bookstore.
If a $70 price cut could fuel that burst in consumer spending, just think of the demand Amazon will spark by knocking another $50 off the price tag.
That’s right – a Wi-Fi ready Kindle can now be yours for the low price of just $139. Pre order now and you can get it by August 27.
It’s been a great July for Amazon and its Kindle e-reader. First, we learned Amazon ebook sales topped hardcover sales by a nearly 2 to 1 margin. Then in the company’s recent earnings report, Amazon said sold three times as many Kindle books in the first half of 2010 as it did in the first half of 2009. And yesterday, the tech giant sold out of its $189 version of the Kindle as the lower price point sparked a buying frenzy.
Even Amazon execs seemed overwhelmed by the success, with CEO Jeff Bezos telling USA Today simply, “It stuns me.”
Clearly the company is looking to ensure this recent bout of success isn’t just a flash in the pan. Competitors are racing to get a share of the e-reader market, with Apple Inc. (NASDAQ: AAPL) and its multifunction iPad as the front-runner but a crowded pack trails behind including the Barnes & Noble (NYSE: BKS) Nook and the Sony (NYSE: SNE) Reader ramping up their efforts, among others.
Price-wise, AMZN has an edge — but not by much. The Nook is now $149 for a Wi-Fi version, and certain versions of the Reader can be had for $149 to $169. But it’s likely those low prices are just to chase Amazon, which is carving out the lower priced portion of the e-Reader marketplace.
The strategy makes sense. Even if AMZN sells its cheap Kindles at cost, you can assume the average user isn’t just going to buy 1 or 2 titles and then let the gadget gather dust. If Amazon can wrangle 10 or 15 books at $9.99 a pop out of readers, it will certainly be a profitable business. The profit margin on e-books is through the roof, with no production costs other than royalties to writers and publishers. Sony and B&N may be able to compete on the initial cost, but neither can match Amazon’s ability to cash in on book sales.
You can bet Amazon will continue to offer “premium models” — for $189 you can get a 3G capable Kindle, and surely Amazon will look to add more bells and whistles to compete with the sexy functions of the iPad. The new $189 model announced today is an upgrade over the older version, with more storage, a sleek new design to reduce glare and other features. But the $139 model appears to be representative of Amazon’s strategy to get more e-Readers out there in hopes that they can keep cashing in on e-Books.
Of course, it’s worth noting that some of the enthusiasm over Amazon may be overdone. AMZN just missed earnings in its last quarterly report. Despite impressive numbers — for the second quarter, Amazon said it earned 45 cents a share compared to earnings of 32 cents a share last year, and grew revenue by +41% — the numbers fell short of expectations. The stock took a beating last Friday morning after the report. Despite making most of the losses back, many investors think Amazon.com stock may be overbought.
But it’s always hard to tell just how successful an innovative new technology will be. Amazon could be blazing a trail for the entire publishing industry, making electronic books and magazines accessible for a low price. Or it could be just the first company out of the gate, and due for a hard fall.
As for which way AMZN stock will go, that’s up to investors. In the meantime, consumers can share in the success of Amazon’s Kindle via the new low price of $139.
As of this writing, Jeff Reeves did not own a position in any of the stocks named here.
The Best-Kept Secrets at Vanguard are Revealed – If you’re ready for the inside help that gives you special advantages over other investors at Vanguard, sign up now for Dan Wiener’s free online newsletter, Fund Focus Weekly. Each week you’ll get independent information on Vanguard’s best mutual funds to buy and sell, advance announcements of new funds, changes in management, plus much more! Sign up and get started today!