We now know why Amazon.com (Nasdaq: AMZN) has been out of stock on its Kindle e-book reader since Tuesday. It's also the same reason why the leading online retailer warned of sharp margin contraction during the current quarter.
Amazon will be rolling out the third generation of its e-reader next month, with beefed-up specs and a lower-priced sibling that lacks 3G connectivity.
The new Kindle will have the same screen size and price tag as its $189 device. It will offer sharper screen contrast, greater storage capacity, expanded font flexibility, and even a longer battery life. The gadget itself will weigh less because it's smaller. The keyboard is more compact, and a new navigational system is in place.
Following Barnes & Noble's (NYSE: BKS) lead in introducing a 3G-less model that costs $50 less, the $139 Kindle Wi-Fi will be an attractive option for those who can lean on wireless hotspots to digitally deliver their e-books and other digital publications.
Both devices hit the market on Aug. 27.
Isn't it convenient how the new Kindles hit the market exactly a month after the second generation was sold out? Amazon has a 30-day return policy in place through most of its Web-based store. If the Kindle 3 were available -- say -- tomorrow, Amazon would be swamped with returns from disgruntled shoppers who have snapped up Kindles in July.
Kindles were certainly selling briskly in recent weeks, since Amazon and B&N broke into a price war on e-book readers. Is this recent wave of buyers going to feel hoodwinked? It's awfully tempting to return the Kindles now for July buyers -- and wait a month for the better hardware. You also have to feel sorry for the folks who bought a now-inferior model at $259 back in mid-June. They're out of the return window.
Amazon needs to do a better job of telegraphing its moves, even if it means alerting its competitors and appeasing its customer base. Otherwise, it's coming as a major dupe artist.
A week ago, Amazon was singing the praises of its Kindle. It announced that it was selling more e-books than hardcovers, and that it had tripled Kindle sales through the first half of 2010 over the first six months of last year. The validating statistics probably encouraged many of those straddling the e-book fence to buy what is now an obsolete Kindle.
Suckers!
In October of 2008, CEO Jeff Bezos was gushing over the Kindle on tastemaker Oprah Winfrey's show. A few weeks later, that model was discontinued.
Oprah moment, suckers!
Don't get me wrong. These new, cheaper Kindles are going to sell like e-hotcakes. The $139 Wi-Fi models may finally be the price point to get newspaper companies to subsidize the devices.
The New York Times' (NYSE: NYT) namesake daily is the top-selling digital newspaper, selling monthly Kindle subscriptions at $19.99 a pop. It can offer up "free" Kindle Wi-Fi readers for folks paying a year in advance (or "free" Kindle 3G for those paying two years in advance). The Washington Post and Gannett's (NYSE: GCI) USA TODAY aren't too far behind at $11.99 a month. Surely there's contractual math that will work now, especially with the $139 Wi-Fi gizmo savior.
The new price points, $10 cheaper than B&N's Nook, may also spell the end of Barnes & Noble in this niche. I argued earlier this summer that this price war would play out similar to Netflix's (Nasdaq: NFLX) cutthroat fight against Blockbuster and Wal-Mart (NYSE: WMT) six years ago in DVD rentals by mail -- with the dot-com star vanquishing the bricks-and-mortar pretenders by holding its breath underwater longer than its leveraged rivals. It certainly seems to be heading that way.
Until cheaper tablets populate the planet, this is a battle between Amazon and Apple (Nasdaq: AAPL), and now there's a wide price gap between $139 Kindles and $499 entry-level iPads.
So, yes, Amazon is making a bold move to make sure that its Kindle 3 will be a hot stocking stuffer this holiday season. However, it still has a lot to learn if it wants to do right by its jilted shoppers and margin-watching shareholders.
What do you think about Amazon's latest Kindle move? Share your thoughts in the comment box below.
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