Amazon (AMZN) announced a new Kindle model. But the innovation isn't in screen size or amount of memory. It's in business model. The new Kindle is partly subsidized by advertising, allowing Amazon to sell the device for $114.
The concept of subsidized hardware has been around for years. Consumers with cell phone accounts have seen it at work; the carriers subsidize much of the cost of the phone. Ten years ago, there were attempts to subsidize PC costs with Internet access accounts. But this is a new direction. The hardware would come directly from the vendor and not depend on some third party to actually buy and resell units. If it works for an e-reader, it could work for a tablet, a smartphone, a TV settop box, or virtually anything else that has or connects to a display screen.
Amazon isn't the first to have considered tying hardware use to watching advertising. Apple (AAPL) filed a patent application in April 2008 for an operating system that would force users to watch ads before it unlocked features or functions.
Google (GOOG) has subsidized development of Android, and the part of a handset's cost it would represent, by making its money on ads -- a lot of money. The company would seem a natural to offer subsidized Google TV units, or even its own Nexus handsets. (If you can't sell them successfully, maybe giving them away will work.)
At one time, ads would probably have come across as annoyance-ware. However, things have changed. People are used to seeing ads in browsers. Watch television and there are all those annoying come-ons for other shows that play in the bottom left corner of the screen even while the current program is running. Play a DVD movie and you have all those trailers for other films.
Consumers are probably desensitized enough that many could consider having ads play for lower-priced products. That could open doors to expand adoption of new types of devices. However, the price break would likely have to be significant. But a $25 break from the $139 price?
- Google Makes $1.4 B a Year, and Probably a Lot More, on "Free" Android
- Apple Targets Google; Advertising May Lead to Affordable Tablet
- Amazon's Inverse Kindle Strategy: Hardware Subsidizes Media