Thursday, June 24, 2010

The iPad's Success Affects Amazon's Kindle

Back in early April, I wrote this post upon the iPad's introduction. Specifically, I opined,

"I don't think there's any question that the iPad will be significant in its category. Some claim that, at least initially, it will also increase volume of ebook sales at Amazon. Perhaps so. But I continue to believe it will marginalize the Kindle, relative to its prior market position."

How much more marginal can Kindle get, than to have to cut its price from $259 to $189, as it did earlier this week?

The e-reader functionality is quickly moving toward a razor-razor blade sort of dynamic. Much more quickly, one suspects, than Amazon expected.

Perhaps, in time, an e-reader will be priced and marketed like a cell phone, with an upgrade included if you buy some sort of volume purchase contract from the vendor's site.

Of course, the gorilla in the room that isn't just an e-reader, the iPad, will continue to affect the lesser-functioned competitive offerings. And as I have written in a prior post, the fact that Apple controls the design and manufacture of the iPad gives it a tremendous advantage.
Over the past five years, as the nearby price chart for Apple, Amazon and the S&P500 Index displays, Apple has outperformed Amazon.
Currently, both firms are in my equity portfolio. They are two of the very few S&P500 firms which have consistently outperformed in the past years. As well as Amazon has done, it pales in comparison to Apple.
The two firms are structurally very different. Apple is essentially a producer of a family of specialized digital applications devices and associated content and advertising systems. Amazon is an online general merchandiser, book and music seller, and vendor of cloud computer.
Still, whether it's due to growth rates or business mix, Apple has been viewed for some time as more valuable than Amazon. You have to wonder, with Amazon having so much less control over its Kindle development than Apple does over the iPad, if that difference will have ramifications for its content sales in the years to come.
One thing is sure. The Kindle is in a direct fight with the Nook and other e-reader-only devices, while Apple's iPad floats above them, offering a different set of features which clearly differentiates it and commands the typical premium Apple price.

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