Amazon's Plan: Make More Money with a Commodity Kindle

(MoneyWatch)  News that Amazon (AMZN) will sell its Kindle e-reader through Best Buy (BBY) seems to stand at odds with what most tech companies like to achieve -- or at least wish they could. In the dream scenario, your company becomes Apple (AAPL) and sells gazillions of widgets at a premium price, showering your coffers with margin beyond the wildest dreams of avarice.

It's nice work if you can get it, but Amazon can't. There's too much pressure from Apple's iPhone and iPad, as well as competing e-readers, Google (GOOG) Android smartphones, and still other mobile devices that can adequately display ebook text. So even though it has kept the Kindle price, after recent reductions, just above competitors, it's going the commodity route. In June, Target (TGT) began selling the device. Now Best Buy has it, and I bet it's only a matter of time and negotiation before you can find one in a Walmart (WMT). Amazon has gone from coveted control of the Kindle to an all out e-book tart -- and it's a smart move.

When thinking of the Kindle, it's important to remember that Amazon ultimately wants two things: to sell its own electronics at high margins, and to lock consumers into using it as their preferred source of all things media, whether books, magazines, music, or video. Of the two goals, the second is far more important, as it matches the underlying strategical structure of the company.

So long as Kindle was the only name in town -- well, other than the Sony (SNE) reader, which had bigger sales than many pundits realize -- Amazon could count on the good times, and the good revenue, rolling in. But then there were disruptions. Apple used the iPhone and iPad to move beyond huge music and video sales and into selling books and magazines. Google had enormous success with Android and has moved ahead in its plans to sell e-books. Barnes & Noble (BKS) released its generally well-received Nook e-reader, combining a device with media sales expertise, and also made it available through Best Buy.

Amazon has no choice. Trying to protect the Kindle would only succeed in ceding much of the marketing to competitors. Instead, Amazon has gone the commodity route, making the device available at an increasing number of outlets. In doing so, it at least reduces the chance that Barnes & Noble or Sony might sell a directly competitive device, and it has its e-reader app on major mobile platforms. Amazon won't make as much money as if it could have kept control of everything, but the market wouldn't stay that way, so it loses nothing.

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