Amazon.com Introduces $139 Kindle Amid Apple Tussle

Amazon.com Inc. Chief Executive Officer Jeff Bezos cut prices and added features to the Kindle to defend it against a threat from Apple Inc. in the fast- growing market for electronic readers.

Amazon.com introduced two new versions of the device, including a $139 model that works with Wi-Fi. A second version, with 3G mobile technology as well as Wi-Fi to download books, costs $189. Bloomberg News reported details in May about Amazon.com’s plans for the Kindle, its bestselling product.

Bezos says focusing on features that make it easier to download and read books will help distinguish its e-reader from Apple’s multipurpose iPad. The Kindle is the centerpiece of Amazon.com’s strategy to capitalize on growing consumer interest in digital books. By offering bestselling e-books for $9.99 that can be read only on the Kindle or its software, Amazon.com is seeking to lock in consumers while it’s still the market leader.

“We’re trying to build something that’s great for long- form reading -- something you’d use if you want to sit down and read for two hours,” Bezos said in an interview this week. “Our mission on the device side of the business is to use the latest technology to make the very best purpose-built reading device. We think that’s a mass product.”

The latest Kindles are thinner and lighter than previous versions and feature faster page turns and sharper resolution. They’re also designed for easier reading in sunlight and have batteries that will last for a month on a single charge -- two weeks longer than the previous model.

The devices will ship on Aug. 27. A notice on the company’s website says the older version of the Kindle, also $189, is temporarily out of stock.

Kindle Obituaries

After the April debut of the iPad, which costs $499 to $829 depending on its features, obituaries for the Kindle abounded. ZDNet technology columnist Jason Perlow predicted that “consumer interest in the Kindle will fade into oblivion.”

Amazon.com fired back last week in its most detailed remarks yet on the Kindle’s performance, saying sales had accelerated every month since the iPad’s introduction. Amazon.com doesn’t disclose specific revenue figures for the Kindle.

The comments were likely aimed at easing concerns that the iPad had crimped demand for the Kindle, said Dmitriy Molchanov, an analyst at Yankee Group. The research firm estimates the overall market for e-readers will be $1.27 billion this year.

Amazon.com wants to ensure that it’s not left behind as consumers embrace digital books on a mass scale. Amazon.com said last week that its sales of e-books topped those of hardcovers, and Bezos predicts that they will soon become Amazon.com’s biggest category of books, overtaking paperbacks in 9 to 12 months.

Building a Customer Base

“All media over time is going digital,” said Heath Terry, an analyst at FBR Capital Markets Corp. “Amazon saw that building a large base of customers would ultimately become a competitive advantage in dealing with publishers. They want to get there as fast as they can, before the competitors do.”

The competitors are coming on strong. Amazon.com controlled about 95 percent of the U.S. e-book market at the beginning of the year, according to Yankee Group. By the end of December, the market is likely to be split into thirds among Amazon.com, Apple and Barnes & Noble Inc., which makes the Nook reader, the research firm estimates.

Apple’s 3.27 million iPad sales since its April 3 release already have surpassed the Kindle’s 3 million units, according to an estimate by Susquehanna Financial Group.

Amazon.com fell 27 cents to $116.86 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have declined 13 percent this year.

Attractive Price

Bezos said Kindle sales began accelerating when the price was cut by 27 percent to $189 in June. Offering a Kindle for $50 below that price will spur adoption even more, he said.

“We think at that price point people will buy multiple units for their households,” Bezos said. “We’ve sold millions of the prior generation of Kindles and we’re going to sell millions of this third generation.”

The question for Amazon.com is whether consumers will prefer to read digital content on devices that aren’t Kindles. Bill Hill, who led Microsoft Corp.’s research in on-screen reading for 15 years, said the Kindle “proved that e-books were practical” but will likely fade in the era of tablet computers.

“You want to be able to read Web content as well,” Hill said. “You’d like to have your magazines and newspapers delivered that way, with color pictures and video.”

The Kindle’s battery-sipping E Ink technology, which mimics paper books by displaying text in black on white without any backlighting, is fast approaching its physical limits, Hill said. Otherwise, an E Ink color e-reader would have come out already, he said.

Color Screen

Amazon.com is testing color technology at its lab in Cupertino, California, a mile from Apple’s headquarters, though Bezos says the screen is “not ready for prime time.” Amazon.com earlier this year also bought a company called Touchco, which specializes in touch-screen technology, two people familiar with the matter said at the time. Amazon.com hasn’t disclosed the transaction.

Bezos, who launched the design of the Kindle in 2004 to speed up sales of e-books on Amazon.com, said he’s not convinced the Kindle needs a color or touch screen right now. Bezos said he’s already rejected certain color and touch technologies that he says make reading more difficult. He declined to say which ones didn’t make the cut.

Flashlight Shining

A color screen doesn’t make an Ernest Hemingway novel any better, Bezos said. A touch screen causes a glare, and reading a 300-page book on the iPad’s LCD screen feels like “reading with a flashlight shining in your eyes.”

“There are a number of technologies out there, and to varying degrees we’ve examined all of them,” Bezos said. “We want a display technology that does not compromise long-form reading.”

For now, Amazon.com is relying on its library of more than 630,000 books, 81 percent of which are $9.99 or less, to lure consumers. It also hedged its bets by making its e-books available across a variety of devices, including iPads and BlackBerrys.

“The real task Amazon has is converting people from physical media to digital media,” Molchanov said. “Any device that can do that will help them.”

To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net.

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