Amazon Divides to Conquer

Amazon.com (Nasdaq: AMZN  ) CEO Jeff Bezos says his company will market the Kindle via two businesses: one for the e-reader itself, and another for its e-bookstore.

Speaking this week at a conference in New York sponsored by Wired magazine, Bezos argued that consumers want simplicity and choice above all in e-book shopping, and that successful e-readers will cater to this need:

The device team has the job of making the most remarkable purpose-built reading device in the world. We are going to give the device team competition. We will make Kindle books, at the same $9.99 price points, available on the iPhone, and other mobile devices and other computing devices.

Touching the touch points
Notice how he uses carefully chosen words -- "purpose-built" and "competition," specifically. The Kindle is and will always be an e-book reader, and the bookstore will always be a bookstore. Nothing matters more to Amazon than the book shopper's retail experience, however he or she comes by it.

Neither Barnes & Noble (NYSE: BKS  ) nor Borders Group (NYSE: BGP  ) should be happy about this. In May, at the announcement of the new Kindle DX, billed as a savior for newspapers such as those in the McClatchy (NYSE: MNI  ) family and a revenue enhancer for magazine publishers such as Meredith (NYSE: MDP  ) , Bezos said that 35% of Amazon.com books are also available in Kindle editions.

In other words, e-books are here to stay.

Bezos' strategy makes sense when you consider the popularity of Kindle editions. At $9.99, they're reasonably priced, and distribution is cheap thanks to the Web. Whether the whole process is cheap enough to give Amazon strong margins is unknown, but it seems unlikely that Bezos would commit to having an unprofitable e-bookstore operate independently.

Assuming it is, wouldn't Amazon's best strategy be to get as many devices as possible pointing to the store? Be the best and most pervasive digital platform for readers, rather than the seller of the best e-reader. Or better yet: be both.

A Mac tablet wouldn't kill this Kindle
Winning in both areas won't be easy. Amazon could face significant competition when it comes to e-readers. Top of the list could be a Mac tablet, a device that I not so long ago wrote of as a Kindle killer.

Some of you didn't take kindly to my assertion. Foolish colleague Seth Jayson rightly points out that there are other tablet options out there now, including a tablet operating system from Microsoft (Nasdaq: MSFT  ) .

Fair enough. The difference here is that Apple (Nasdaq: AAPL  ) already has the App Store for selling content, and it has proven to be nearly as good at distributing games as it has music. E-books are just another form of content.

What's more, Apple could do well with an interactive e-reader with full color and multitouch zoom. Yes, such features would gobble battery power, but the iEmpire recently reinvented the battery for its MacBook line, including the new 13-inch model. Porting this ultraslim, multihour workhorse battery to a 12-inch tablet wouldn't be difficult.

See you at the checkout line
Nevertheless, Bezos' strategy looks to me like a powerful stiff-arm. Separating the hardware from the store means that even if Apple does come out with a killer tablet, users would still have the option to buy from Amazon thanks to the Kindle Reader for iPhone -- and Amazon is likely to have the greater e-book selection.

And who's to say that future iterations of the Kindle hardware wouldn't keep up? Sure, Apple has years more experience designing devices, but once you free a team to create the best hardware it can, good things tend to happen -- witness the birth of the original Macintosh computer. Bezos appears to be granting that same freedom to his e-reader team.

Above all, Amazon.com is a retailer. Selling merchandise is what it does best and e-books are like any other category. Bezos wants his company to sell more of them than competitors.

Divide, then conquer. With Bezos' Kindle strategy, Amazon just might.

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Fool contributor Tim Beyers had stock and options positions in Google and a stock position in IBM at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is tech-tastic.


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