Amazon's Kindle: A customer relationship management appliance?

The Kindle's real benefit to Amazon may never show up in the profit and loss statement directly. Instead, the Kindle is about keeping the top 5 percent of Amazon's customers engaged since they account for 20 percent of the e-tailer's sales.

The Kindle's real benefit to Amazon may never show up in the profit and loss statement directly. Instead, the Kindle is about keeping the top 5 percent of Amazon's customers engaged since they account for 20 percent of the e-tailer's sales.

That argument was laid out by ThinkEquity analyst Edward Weller. He's wildly bullish about the Kindle's effect on Amazon's business. In many recent research notes, Weller can barely contain his enthusiasm. Weller, who pens some fun reads on the retail sector, writes in his latest missive:

Kindle's most-important benefit to the company, one that may appear indirect and secondary, one we view as utterly central: Kindle firms up and solidifies Amazon's connection to its most important customers, and not just the heaviest users, but a special class of heavy users who were at the beginning—and probably still are—at the very heart of the franchise: better-educated, higher-income, early-accepting, serious readers, the kind most motivated by depth of selection, the kind that seem increasingly dedicated to Amazon as the default go-to for media... and, increasingly, everything else.

Weller reckons that the top 5 percent of Amazon's customers account for 20 percent of the company's sales. The upshot: Amazon will enable these folks to buy non-media items from the company.

Consider the following:

Like a warehouse club’s membership, Kindle enhances customer commitment and, with the convenience it provides, and perhaps even more importantly, indirectly, through “Kindling” on other devices, it also adds to the customer base.

The risk here is pretty obvious. If Amazon screws up the Kindle---with cracked screen flaps and digital rights management problems---then it risks annoying its most important set of customers.

If Weller's theory is right---and I'm not sure I completely buy it---the Kindle is really a customer relationship management appliance that will drive more revenue and earnings that will ever be directly attributed to the Kindle.

Who would've thunk it?

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