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Hostile Environment: Amazon's Cheap Kindle Faces Uphill Battle for Advertisers

There might be a slight problem with Amazon (AMZN) staffing up its ad sales division in hopes of becoming the new Groupon via "Kindle With Special Offers," better known as the $25-off-Kindle-as-long-as-you're-willing-to-live-with-screensaver-ads:

Who, exactly, is going to advertise on a screen that has no apps, no movies, no games and no web browsing?

Amazon is surely eyeing the $30 billion digital display ad market. General Motors' (GM) Buick and Procter & Gamble (PG)'s Olay have come along for the launch ride. That all sounds very positive until you remember the experience Apple (AAPL) has had with its iAds on the iPad -- it's having difficulty finding clients.

Amazon's third launch partner is basically a house ad for Amazon's Rewards Visa. Many of the "offers" from Amazon will be from house ads, according to Consumer Reports:

Early offers will include a $20 Amazon gift card for $10, $1 for an album from the Amazon MP3 store, and $30 worth of merchandise from either the Amazon Denim Shop or Swim Shop (who knew about those?) for $10.
OK, so Amazon may be able to gain extra sales by using Kindle ads to promote the stuff it's already selling in its Amazon stores. But are there real clients with real ad money lining up behind Buick and P&G who for some reason believe the Kindle will offer them something the iPad does not?

Book publishers mostly don't advertise

The most obvious prospects are book publishers. The Kindle would be a perfect place for their ads. The only problem is that publishers spend hardly any money on advertising: About $144 million a year. That sounds like a lot until you realize that the "entertainment" advertising category is worth about $12 billion. Booksellers are just 12 percent of entertainment ad dollars. Most book "marketing" consists of mailing the book to reviewers and begging them to read it.

Most entertainment advertising is for movies, but as you can't buy, download or watch a movie on a Kindle, how many studios will be tempted by this space? I guess you could advertise the movie versions of books to Kindle users, and have them buy the DVD on Amazon. But DVD sales are in long-term decline.

Worst of all, you can turn Kindle ads off easily by disabling the wifi while you're reading. Kindle might be a hostile environment for advertisers.

Here's one solution: Amazon should give booksellers pay-for-performance terms on any ads they place on Kindle. Amazon would take a cut on any book sales made via those ads; and booksellers would only have to pay for ads that actually led to sales. For the first time ever, book advertising might actually become a functional business proposition and Kindle readers won't have to sit through irrelevant ads for face cream and cars.

Related:

Image: Amazon's slightly irritating Kindle girl
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