Why Amazon's New Kindle Unlimited Program Will Be Bigger Than You Think

Don't look now, but Amazon just broke the rules ... again.

Jul 23, 2014 at 6:56AM

Do you like books? If so, you were probably super-pumped by what Amazon.com (NASDAQ:AMZN) announced last week. It's not some fancy cloud offering. It's not a phone, tablet, drone, or other doohickey. It's much, much better.

So let me tell you why Amazon's new Kindle Unlimited service is going to be a big deal.

Here's the thing
Kindle Unlimited allows for reading of 600,000 books on any device for $9.99 per month. With a tag line of "Kindle Unlimited gives you the freedom to explore...," the service offers access to content you might not have otherwise picked up.

Introducing Ku

Source: amazon.com

When you subscribe, you can also listen to thousands of those same books. It works with any title that has a Kindle Unlimited with Narration icon. It also remembers and records where you left off, so you can use it when your eyes get tired.

Another feature of Kindle Unlimited is you can use it on any device, including iPhone and Galaxy smartphone, with the Kindle app. As an added perk, you get access to three free months of Audible.com. It's an Amazon company and is home to 150,000 audio books.

Why it's so good
So now that you understand the functionality, here's why it matters. Kindle Unlimited will eventually be a hit because it will further engage Amazon customers. If you can reach your customer on a different level -- be it a product or service -- you build engagement.

If you can engage your audience, you build loyalty. As consumer loyalty grows, your company becomes the first place your customer looks when he or she needs or wants something. Obviously, Amazon already has the whole convenience and price thing going for it. 

And the scope of this little project could be massive. Amazon currently has more than 20 million Prime members. These are the diehards, the super fans, and the best customers. I'm being conservative here, but if only 25% -- or 5 million -- subscribe to Kindle Unlimited, we're talking about an extra $600 million in sales.

The other thing about increased consumer loyalty is it helps to reel in more customers. More customers to the platform means more customers to other product offerings. Kindle Unlimited will help Amazon better sell the Fire TV, Fire tablets, and even the new Fire phone.

S Slate

Source: amazon.com

So what does that mean? It means customers will not only pick up the devices, but they will become further immersed in the Amazon ecosystem of content. It's common sense to think that tablets, set-top devices, and phones will sell more games, movies, books, and other apps. 

When giants compete...
Apple's iTunes store does more than $10 billion per year in sales, and Kindle Unlimited should help Amazon bite into that. Even better, it may force Apple to innovate and come out with its own version of the service. If so, you and I will be the winners.

Competition brings out the best in disruptive innovators. Imagine what can be accomplished when companies plow billions into the development of a platform that is working to earn our nickels and dimes. Now that's what I call value for the customer. 

The only problem...
The only concern I have with Kindle Unlimited is its potential to cannibalize the sales of Amazon's e-books. While it's tough to say how much that will be, let's look at it this way. If the average Amazon Prime customer spends $538 per year, let's figure 10% of that is spent on books. That means Amazon's best customers spend $54 per year on reading materials.

Kindle Unlimited is looking to rake in $120 per year from its members. That's a full 22% of the entire Amazon Prime customer spend, which is significant all by itself. But if I'm close, that's also more than double the yearly book budget for Amazon's best customers. Ultimately, I think Kindle Unlimited will help Amazon sell more books, and obviously, so does Jeff Bezos. 

Foolish final words
With Kindle Unlimited, everyone wins. We get to enjoy more content, and Amazon should earn a nice chunk of change. It's these types of customer-centric product innovations that keep Amazon customers coming back.

Today is great day for bookworms like us. Amazon has developed a new and innovative service to help us do more of what we love. And I think the consumer will reward the company in more ways than one.

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Wade Michels has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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