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Potential for publishers in new Amazon Kindle

Potential for publishers in new Amazon Kindle

Amazon's Kindle FireNew tablets present great opportunities for news media, says Frédéric Filloux, but flexibility will be paramount.

With each introduction of a new reading device, publishers around the world are overcome with the same recurring same fantasy: what if it worked, this time around? Could a reliable business model emerge for news publishing companies?

Last week's launch of new Kindles is no exception to the cyclic fantasy.

To sum up: the new lineup features the widely expected Kindle Fire (full colour display, multimedia capabilities and the clever, cloud-accelerated Silk browser – see Jean-Louis' column). In addition, Amazon redesigned its E-ink-based Kindle with two models, including a small 6-inch version that fits in a pocket. All of them priced aggressively, below their production cost.

A lot has been written comparing Apple's iPad and Amazon Kindle devices. Exciting but not relevant. The two companies' strategies can't be more diametrically opposite.

Apple is in the hardware business and all other product lines – software, media offerings – exist for the sole purpose of raising perceived value and units volume. Then, great product execution and streamlined operations help maximize margins. Apple's gross margin on iPads is about 30 percent.

By contrast, Amazon is a digital retail company in which all forms of media – books, videos, music, games – account for about 40 percent of its sales. Its hardware strategy is designed to funnel customers to its retail business.

This explains why Amazon doesn't care much about Kindle hardware margins, and is much keener to strike deals with content providers than Apple is. In parallel to the launch of its new Kindles, Amazon has harvested a large set of deals with media companies. Its Kindle Fire Newsstand is already impressive and features a three-month free trial for a selection of magazines. Symmetrically, a growing number of publishers keep complaining about Apple's harsh terms; as a result, in the coming months, we'll see many prominent publishers exit the Apple ecosystem and switch instead to web-based apps (a move that is actually more complicated than it appears).

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