I happened upon an article this morning about how Amazon would likely be offering Kindles for free — at least to some people — by the end of 2011. Namely, to Prime members. Generally speaking, and from my perspective, Amazon Prime membership looks like a more and more attractive option as time goes on. If the free Kindle prediction holds true, I'll definitely sign up.
I've been an advocate of free Kindles for quite some time. When the original Kindle first came out in 2007, it sold for $399. I immediately realized Amazon would do much better to give them away for free. It sounded like a radical idea at the time, and I even remember pitching this idea to a few folks and getting scoffed at for it. That was my first clue I was onto something.
It's really not such a bold concept from a technology perspective or a business perspective. If you've bought a printer for your home in the last decade or so, you probably didn't pay a lot for it. In fact, I bet over the life of a printer, most people pay more for ink cartridges than they do the actual printer. Why do you think HP is so keen on everyone buying Genuine HP Cartridges™ (and resorts to dirty tricks to ensure that happens)? Simple — because there's a buck to be made there. Why do you think there are places which refurbish cartridges? Again, because there's a buck to be made there.
Lest you think this is crazy Silicon Valley talk, the pioneer often credited with developing this business model is King Gillette in the early 1900s. No, he wasn't really a king. But he did build a nice kingdom — the Gillette Company. And the crazy "give the razor away but sell the blades for full price" company was bought by Proctor and Gamble for $57 billion back in 2005.
Amazon is doing just fine with its Kindle sales. Though the company is frustratingly vague about the actual numbers, Amazon is quick to claim the Kindle is "The #1 bestselling product on Amazon" — it's practically become the company's motto. Sooths at Bloomberg estimate Amazon sold eight million Kindles last year, one of which ended up at the Mills house. (And yes, it's a very cool device.) Ebook sales are up as a result, as are sales of competing ebook readers like Barnes and Noble's Nook.
The ebooks are the real moneymakers, though. There's no physical inventory, so there are no shipping costs or hassles. Their retail cost is typically in the $5 to $10 range. And once an ebook is uploaded onto a server and all the proper magic is in place so people can download it, there's no reason to ever remove that capability. Amazon can print money at this point.
Now — with over eight million customers essentially locked into the proprietary Amazon format, and each of them having bought six or seven (or more) ebooks, they're probably not going to jump ship and get a different ereader. First of all, these other devices won't read the Amazon format, so getting a different ereader would require downloading everything again. And second, in the ebook department, Amazon's huge virtual library is the famed 800-pound gorilla: they've got just about everything.
So to wrap up, the Kindle customer base is huge, and it's getting both larger and more deeply entrenched. The ebooks themselves are nearly pure profit. And "razor and blade" is a viable business model.
I believe this prediction will come true... and I'll be more than happy to pay for One-Day Shipping when it does.