Kindle Economics 2: Why Amazon should not be Apple, and Jeff Bezos is not Steve Jobs

Amazon CEO Jeff Bezos presents the Kindle 2 to a packed auditorium. What sort of product rollout does this remind you of?

So the Kindle 2 has now made its debut, with everything you'd expect of a gee-whiz product launch -- a packed auditorium filled with media types, a celebrity endorsement (best-selling thriller novelist Stephen King) and a Insanely Great-style presentation by Amazon's CEO, Jeff Bezos.

Click on the "Read the rest of this entry" link below for more.

Heck, the event was so overbooked, that when I arrived 15 minutes late to the event, I found myself locked outside the Morgan Library along with Oprah's representative, where we pleaded with the PR gatekeepers to be let into the building."No, really, we're on the list! We RSVPed!".

We eventually got in, but there was a level of obnoxiousness, arrogance and elitism at this press event and launch  that smacked of a certain Fruit-Flavored technology company. After the dog and pony show, the devices were behind glass cases, and face time with the product nearly impossible, with crowds of media cognoscenti dying for that minute or two of handling the device, circling around the product execs cum Kindle-wranglers like hungry wolves.

Also See: Kindle 2 Up Close and Personal (Photo Gallery)

Also Read: Amazon Kindle 2, 5 Burning Questions (Larry Dignan)

Also Read: Why I Won't Be Buying the Kindle 2 (Joe Brockmeier)

Needless to say, there is a lot riding on this product launch. For starters, the Kindle 2 is being announced during one of the worst recessions in modern history. Unemployment is on the rise and is starting to approach late-1970's levels, and consumer spending on durable goods is completely in the toilet. So I find it utterly mind boggling when Bezos and crew can say with a straight face that the new Kindle 2 is going to sell for the same full retail price as the old Kindle -- $359.00. And guess what, there's a waiting list for it too.

Amazon has blown it with the Kindle on so many levels that it's difficult to elaborate on just how screwed up their business model is. Back in November, I talked a bit about the economics of owning a Kindle -- I was expecting that the new model would be $300 or less, perhaps a full $100 less than the previous model, at around $259.00, which I believe is much closer to approaching the "Sweet Spot" for mass adoption of an e-book reader. For those of you who aren't up to reading the other piece, the summary is this, and is no less valid than it was four months ago:

A Kindle at the current price level of $359.00 is a viable purchase if you read a minimum of six books per month at Amazon's NY Times Best Seller prices, at around 10 dollars a book, if you expect to break even on the cost of the unit with the savings on using e-texts versus hardcover books over the course of one year. That's 72 best-sellers a year.

Got it? Okay, great. Even with the advances in the new Kindle 2, Kindlenomics is status quo. Again, Amazon goes out and builds a Mercedes and not a Volkswagen -- or rather, an elitist product for a recession economy. Hello? Bueller?

Let's get down to the technology on the Kindle 2. 16 gray scale display as opposed to 4? A nice improvement for those of us that find value in illustrations in newspapers, but doesn't compel me to spend $360.00 on the thing. Almost 2GB of usable internal storage versus 180MB? Considering that even the longest e-books are a few hundred kilobytes total, I don't see a tangible benefit to being able to store 1500 books with me on the go versus 200.

Why is the Kindle 2 is starting to sound more and more... iPhone-like, in a BAD way?

The first Kindle was already a rudimentary MP3/Audiobook player, so why not allow me to carry a ton of work documents (PDFs, Words, text files) with me as well as a pantload of audiobooks and MP3 files, so I can use it as my primary audio entertainment device when I travel? And unlike the previous model, they've gone and released a unit with no expandable storage capabilities whatever. How big a deal would have it been to put a SDHC slot on it so I can pop in a 8GB memory card? What, are we too afraid to piss off Apple and cannibalize Amazon iPod sales? C'mon.

And again, why does a consumer NEED to absorb the cost of Amazon maintaining the "Free" 3G Sprint Whispernet service by increasing the cost of unit and cost of the E-texts? Can't Whispernet be a subscriber option?

I think a ton of us would be willing to sacrifice the instant gratification of downloading books over 3G versus downloads when they are in Wi-Fi range, if it meant a $100-$150 price reduction. What does a Wi-Fi chipset really cost these days, 5 bucks? How difficult would have it been for Amazon to partner with a dozen or more different Wi-Fi hotspot carriers for a "Kindlenet" option which was competitively priced against Sprint and their EV-DO?

With the Kindle 2, Amazon could have approached the product as a reference spec for a device, and not a product itself. It could have easily partnered with several manufacturers -- LG Electronics, Samsung, Toshiba, SHARP, Panasonic, Philips and SONY, just to name a few -- the very same folks who have brought you competitive prices on HDTV sets -- who could have all produced units with differing feature sets which were compatible with Amazon's Kindle store, and were available for sale online on Amazon.com. Instead, Amazon is taking the "We want to fully control the platform and envision a specific design" position that Apple does with the iPhone, the iPod and the Macintosh.

For a company who's primary bread and butter is the selling of content and competing consumer goods, locking down the platform and limiting the design specifications just seems like a stupid idea. What if I want a bigger screen or a smaller one? What if I need a lot more storage? What if I want my unit more ruggedized? With a one size fits all model, consumers have no choice, and it limits your market. At the end of the day, Amazon makes its money from e-Book sales, and not Kindles. At least, that's precisely where their head should be screwed on. If that's not where it's screwed on, then something is seriously wrong.

Apple does get one thing right with the iPhone that the Kindle absolutely falls flat on -- in that you can actually develop applications for an iPhone or an iPod. As I said before in a previous piece about why Amazon should NOT maintain it's own proprietary Linux OS platform and use Google's Android instead, a huge amount of computing potential on this device is being wasted. On discussing this with my colleague Larry Dignan today, he argued that Amazon sees the Kindle as a book, and nothing else. I differ with that analysis. Potentially, I see it as a game-changer computing device, if developers could have access to it and create applications that run on it. My ZDNet Open Source colleague Dana Blankenhorn agreesas doesMr. Community Incorporated Joe Brockmeier.

Besides answering the obvious "Why can't I get my GMail or browse the web on this thing" question, imagine, for example, the natural integration points if you could run Facebook or Twitter on your Kindle, which would post what books you are currently reading to your profile page, or if your Kindle reading list could be exported or shared with friends with similar interests.

Maybe with new apps, you could even create new friends on Facebook by virtue of reading the same 12 books as someone else has in the last two years, and a algorithm could match you up with someone. Or create virtual "Book Clubs" where groups of people can add annotations to the same works of literature that they are reading and have discussion threads linked from paragraphs and chapters directly from the device. Or if universities and high schools or even corporations could put up servers that can hook into the Amazon marketplace API and the Kindle bookstore and give away free e-books and other content. Missing technical manuals and user guides for every product you've ever owned, anyone?

Jeff Bezos and Amazon has the Dynabook in its hands, but is unwilling to realize its full potential by keeping the device completely closed.

Are you going to go buy a Kindle 2 when it goes on sale? Or has the device's high cost, inflexibility and closed system turned you off? Talk Back and let me know.