Amazon Is Killing the Kindle

When I named Amazon.com (Nasdaq: AMZN  ) my pick as the best stock for 2009 -- a pick that's up more than 120% through yesterday's close -- I argued that investors buying at last December's prices were getting its cloud-computing business for next to nothing. The Kindle didn't much play into my valuation equation.

In hindsight, it should have. Platforms matter, and Amazon has created one of the best in the Kindle. Buy your books in either physical or digital form -- Amazon doesn't care. The Kindle ensures that the e-tailer will get a cut of the proceeds.

Or at least, that's how it has been. But poor stewardship may soon knock Amazon and the Kindle from its perch.

The ecosystem that isn't, but needs to be
Digital platforms are changing from vertically integrated value chains, where the systems are entirely controlled by one vendor -- think Apple (Nasdaq: AAPL  ) and iTunes -- to a newer, more open ecosystem that can be shaped, changed, and extended by anyone with a creative idea. Twitter is the best example of this form of platform, attracting a billion-dollar valuation as a result.

Interestingly, Amazon's EC2 is a highly extensible cloud-computing platform. Amazon supplies the tools -- the storage, the processing power, etc. -- and users supply the creativity, like adding water to a plant. Contrast that with the Kindle, a closed, vertically integrated platform that shows no signs of opening up.

Can we ask why, Amazon? Please take a look at some of the more successful names in tech right now, and you'll find a common denominator: Outside developers are adding to their offerings. I'm talking about salesforce.com (NYSE: CRM  ) , Netflix (Nasdaq: NFLX  ) , and Apple, of course, but also Palm (Nasdaq: PALM  ) , whose webOS smartphone operating system has earned acclaim.

Too crowded to be closed
And let's not forget who Amazon is facing. Yesterday's news from Sydney, Australia reported that talks between Apple and Amazon apparently fell apart after the e-tailer apparently demanded 70% of the proceeds generated by a partnership between these two. No details are available, but could you imagine the App Store available on a next-generation Kindle?

I can. Barnes & Noble (NYSE: BKS  ) and Microsoft (Nasdaq: MSFT  ) have e-readers planned, and B&N's Nook already looks more interactive than the Kindle. Amazon needs an App Store of its own. Why? We like platforms. They're a virtue, offering us personal experiences, customization, and choice.

Think of Facebook. Though it's not a completely open system -- you can't read my feed unless you are my friend -- Facebook has tools for creating software for its increasingly vast ecosystem. Each one of those applications makes the whole network more valuable. Facebook is the iTunes of social media, but without the attendant costs.

How about a Kindle klatch?
Books are social tools, too. There are bookstores, book clubs, and readings at coffeehouses all around the world. Why isn't the Kindle a more social device? Why isn't a platform that extends beyond Amazon's Seattle headquarters to incorporate third-party software, as the other great digital ecosystems do?

I'm not the only one thinking this way. According to a recent New York Times story, Forrester Research has been surveying consumers to find out what other content besides books they'd like to see on e-readers.

"[Add applications and] all of a sudden you've gone from a device that is great for reading books and maybe newspapers and magazines to something that has a real utility for business people and also for consumers," Forrester analyst Sarah Rotman Epps told the Times in an interview.

Plus, the timing for opening up the Kindle couldn't be better. Amazon's revenue and profits soared in the third quarter, and cash is flowing -- more than $1.9 billion over the prior 12 months. Amazon has the resources to create and sustain a developer network.

The Kindle needs developers to keep it in the lead, Amazon. Go get them before it's too late.

Amazon, Apple, and Netflix are Stock Advisor selections. Microsoft is an Inside Value pick. salesforce.com is a Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers had stock and options positions in Apple 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. The Fool's disclosure policy is gathering kindling for a little rest by the fireplace.


Read/Post Comments (6) | Recommend This Article (9)

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  • Report this Comment On October 28, 2009, at 5:11 PM, goodoldneon wrote:

    E-ink in its current form does not allow for the all important “app”. As a very satisfied Kindle owner, I would rather not see the device try to emulate every other iwhatever on the market. As someone who stares at a backlit monitor for 8+ hours a day, I have very little interest in staring at yet another eye-straining, backlit screen. Though it requires external light, the Kindle’s screen beautifully recreates the experience of reading a “traditional” book, take that away, and my interest in the next iteration of the Kindle would wane considerably.

    Books have existed for centuries without the assistance of, or need for additional, attention draining apps, and that is the experience e-readers seek to recreate.

  • Report this Comment On October 28, 2009, at 7:29 PM, militauro wrote:

    @goodoldneon

    I disagree with your post on keeping e-readers as e-readers. I mean yes, the focus should definitely be on reading and books. Lets compare to the iPhone since the author is obviously headed toward that direction anyway. An iPhone, if the user wanted to, could be just a phone. The phone is probably the feature I use the least, but if I wanted to I could use it exclusively. The phone worked out because its a device you carry around with you everywhere and happens to do a lot more.

    I agree with the author on this point simply because a Kindle is pretty similar. If you read books, you might be taking your Kindle with you on trips, to read during your lunch, and of course keep it at home. What is the problem with adding functionality that would attract other users? What if a Netflix app is integrated to a future Kindle that supports video streaming?

    Again, I think the core and focus should always remain. Apple got the phone part right, voicemail, etc. However, keeping the device limited also keeps the adopters limited. Listen to this article Amazon.

  • Report this Comment On October 28, 2009, at 8:07 PM, stan8331 wrote:

    I absolutely agree. Companies who prosper in the new digital age are those who give the user MORE control and a richer experience. Whether I want to watch a movie this way, that way or the other way, Netflix says "let us help you with that".

    So many businesses seem to be incapable of comprehending that making life easier for their customers will allow them to enjoy huge profits, while making life harder on their customers (e.g. the geniuses of the RIAA) will send them careening into unprofitability and eventual bankruptcy.

    Amazon has gotten a lot of things right, but as they become a larger and larger entity, there is the danger of starting to think like behemoths of the past, striving to greedily protect their old business model at the expense of their own customers. In today's world, it's innovate and provide greater value, or die.

  • Report this Comment On October 30, 2009, at 7:40 AM, caliopia wrote:

    I have an e-reader, a Kindle, in fact. I researched the e-reader market heavily before I made my decision to purchase.

    You can't beat Amazon.com for e-reader and e-book price, ease of buying e-books, the number of e-books, and, most importantly, their customer service is unparalled.

    I don't want "apps" on my e-reader. I have an iPhone, a PC and a desktop for "apps". I want an e-reader for one thing and one thing only, TO READ BOOKS. While, admittedly, I'd love it to wash dishes and clean the cat hair off my sofa, I'm staisfied with what it does and how well it does it.

    It seems as if everyone who complains about e-readers not having enough bells and whistles aren't avid reader and don't own an e-reader. Join the Klub then complain about what's missing.

  • Report this Comment On October 30, 2009, at 12:40 PM, FoolInStocks wrote:

    I agree that the drive to try to make everything an all-singing-all-dancing device is getting ridiculous. However there is a great convenience in being able to do a lot of the things you need to from whatever device you happen to have available. So for those who really want access to e-mail, etc, then a fully functional web-browser on the Kindle would be nice (IMO grayscale would be fine for most things). I certainly don't agree that a book (the Kindle) needs it's scope changed to include a lot of noise which has nothing to do with books.

    That is only half the authors point though, the question is whether Amazon should be trying to emulate the original iTunes model of closed IP - or whether it should be more open with it's eBooks. Apple already dropped DRM and allows fully open MP3 formats to be used as well as their proprietary one - so Apple have already been here and abandoned this model. If Amazon want to dominate eBooks - they should open that side up, using their market position to establish a system where those precious and very intangible digital book rights can be read anywhere - PC, other eBook readers, iPhone (yes I know 'they have an app for that'), other phones, etc. They should be using their position to establish an open eBooks market which they dominate based on superior customer-service, wider range, wider platform support, market reach, price, etc, etc. Not by a proprietary format which is realistically doomed to eventually succumb to an open format driven by someone. The consumers will eventually go for an open format afterall would you buy a DVD if you could only it on RCA DVD players - of course not, so why buy a book which is similarly limited.

  • Report this Comment On November 04, 2009, at 2:11 PM, marhu wrote:

    Thanks for the insiteful article, Tim. I can only wish I had listened to you and others and bought into AMZN despite my curmudgeonly hangups about P/E ratios and all that.

    For myself, one of the many reasons I have resisted getting a Kindle is the restrictive licensing. The no-loan, no-transfer of e-books makes them effectively much more expensive than paper books.

    Granted e-ink is not suited for full-screen apps, but that doesn't mean it can't have some sort of little status bar along an edge that could display a few [social] widgets next to the clock. It does have minesweeper, how about hangman or Scrabble? http://www.linuxjournal.com/article/10432

    I am excited about the B&N Nook reader for several reasons: the loaning of e-books, the PDF support, the interactive color touch screen in lieu of keyboard, and finally the semi-open Android operating system. Android itself is open, but if the Nook shell doesn't provide a mechanism for downloading or running apps, then you are still stuck in the walled garden.

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