Amazon's new ad-supported Kindle isn't just the future of e-readers, it's a look at the future of gadgets.
Not everything you buy will eventually be subsidized by advertising, but for the devices where it makes sense, we expect to see a lot more of it.
Why are we excited about the prospects of the new Kindle in particular?
The ads aren't that annoying. We spent several minutes fondling prototypes of the new Kindle with Special Offers today, and the ads just aren't that bad. They aren't popping up in the middle of reading a book -- they're just replacing the Kindle's screen saver, and a small strip at the bottom of the home screen. For many people, that will be worth the $25 (18%) lower price tag.
It's not just ads... it's a membership into a special deals "club." Groupon or Thrillist subscribers don't think of themselves as signing up to get another ad in their email every morning, they think they're getting something special. The offers that Amazon has been posing are similar -- such as half-price Amazon gift codes -- and they're only going to be available to people with this special, new Kindle. So it's not just a $25 rebate, but a new, potentially valuable source of content and deals in your life. This is better than not having a Kindle at all, which is the reality for most people.
The subsidy could easily be more than $25 eventually. Look, we all want this thing to be $99. Or free. But Amazon has to start somewhere. The company needs to make sure it's going to be able to sell these offers; deliver and measure ads properly; that people aren't going to be buying dozens, fraudulently wiping them, and selling them for full price on eBay; etc. But an almost 20% discount isn't a bad place to start, and we wouldn't be surprised if this instantly becomes the best-selling Kindle. Or if it's $99 by Christmas.
For device makers, this could really jack up profits. The special offers business is a good one, if you can scale it, and if fraud doesn't kill you. These aren't just crappy, low-CPM display ads. If the program works out, this is an opportunity for Amazon to potentially make dozens or hundreds of dollars of additional revenue and/or profits from Kindle buyers over the course of a device's lifetime.
This kind of offer could gradually spread through the gadget industry. Hello, half-price connected TV sets with pre-roll video ads? Or iAd-subsidized iPhones? Or Amazon Android tablets? Or Xboxes?
Not every company is going to be able to do this right away. Amazon has the benefit of already having the gadget, commerce, and content platforms to do this. (And no wonder why Amazon is trying to hire all those ad people.) Even Amazon's house ads could make this profitable. Other gadget brands are going to need partners. And that could fuel a new industry to develop, with companies like Groupon, LivingSocial, Facebook, Google, or still-unfounded startups playing big roles.
Obviously, this isn't for everyone or every device. There are many people out there who will pay extra to avoid ads. There are many devices where the ad subsidy wouldn't be worth it. But as long as the deals are good, and the financial equation works out, this business model could become widespread.
Now, don't miss: Here's How Amazon Could Quietly Become A Huge Tablet Player
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Here's Why Amazon's Ad-Supported Kindle Is The Future Of Gadgets (AMZN, AAPL)
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