Amazon's new Kindle has better margins than the company does

“There must be something in the water at Amazon.com, given its commitment to price-cutting whatever the short-term pain,” remarks Martin Peers in a Wall Street Journal report. He explains that “The retailer’s decision to introduce a new, cheaper Kindle, just weeks after slashing the price of the existing version of the device, confirms that once again Amazon is taking the long view in trying to boost its share of a market—this time, e-books.” But it could also explain why the company continues to post lower-than-expected numbers, making Wall Street still wary.

As Peers also notes, “At $139, the new device is about a third the price of the original Kindle and nearly half what the second iteration was selling for just five weeks ago.” However, “That doesn’t mean the Kindle will become ‘mass market,’ as Amazon suggests; an occasional book reader is arguably no more likely to pay $139 for an e-reader than $259 ….”

What’s more, as he continues, there’s the fact that “Amazon also faces intensifying competition. Foremost is Apple. Its iPad, while pricier, offers far more functions than simply e-reading, and some may find it more user-friendly than the Kindle. Through June of this year, 3.3 million iPads had been sold.”

There’s also the Barnes & Noble Nook, which, says a New York Times report, is about to undergo a massive promotion campaign. According to Julie Bosman,

the chain will begin an aggressive promotion of its Nook e-readers by building 1,000-square-foot boutiques in all of its stores, with sample Nooks, demonstration tables, video screens and employees who will give customers advice and operating instructions.

By devoting more floor space to promoting the Nook, Barnes & Noble is playing up what it calls a crucial advantage over Amazon in the e-reader war: its 720 bricks-and-mortar stores, where customers can test out the device before they commit to buying it.

And the coming price war, says Peers in the WSJ, might “damp investors’ appetites for companies. Amazon may be following the only path open to it, but it still risks scaring those who don’t trust the company’s commitment to the bottom line.”

Meanwhile, one player says it’s staying out of the price war: “Sony won’t sacrifice the quality and design we’re bringing book lovers to lay claim to the cheapest eReader,” says the company’s  “vice president of digital reading,” Phil Lubell, according to a Forbes report.

Nonetheless, most are predicted the $99 ereader is just a question of time.

Amazon head Jeff Bezos, meanwhile, in a USA Today report, says, “I predict we [Kindle] will surpass paperback sales sometime in the next nine to 12 months. Sometime after that, we’ll surpass the combination of paperback and hardcover.”

And I predict that he won’t show any proof whatsoever of that. And that everyone will believe him and print it as fact nonetheless.

“Three iPad users claim that because the iPad will shut itself off after remaining in direct sunlight for long enough, it fails to meet the promises Apple made about using the iPad as an e-book reader. The group has filed a federal class-action lawsuit in the Northern California district to ‘redress and end this pattern of unlawful conduct,’ according to this report on Ars Technica.

The lawsuit claims that the iPad does not live up to Apple’s claim that “reading on the iPad is just like reading a book.”  Ars Technica reports, “This claim is patently false, according to the lawsuit, because a real book can be used in ‘the sunlight or other normal environmental conditions’ without shutting off.”

They go on to say:

When the iPad’s operating temperature reaches a critical level, it will force itself to shut down and display a message warning the user to let the device cool down before trying use it again. This warning is the same that iPhones and iPod touches give before shutting down when they overheat, often after being left in direct sunlight….

The iPad may not work “just like a book” at the beach or out in the hot sun. Does that fact truly make Apple guilty of fraud, negligent misrepresentation, deceptive advertising, unfair business practices, breach of express or implied warranty, intentional misrepresentation, or unjust enrichment? The plaintiffs are seeking class-action status and asking for an injunction against Apple’s “false” promises as well as “real” and punitive damages.

Chris Walters’ post over at the Consumerist wonders:

If the plaintiffs win, I think Apple should also be forced to install a wind sensor so that pages flip automatically when you’re outdoors in a strong breeze. Then the company could sell an “iPadWeight” wireless accessory ($69) that you would have to put on top of the screen to “hold down” the pages. A wireless “iMark” ($29) that would function as a bookmark wouldn’t be a bad idea, either.

All schadenfreude aside friends, this case does seem to fail the “reasonable person” test quite miserably. But, hey, this is America. You can sue for anything!

Blonde and Wet, the Complete Story was the top-ranked ebook on the iPad’s top-ten bestseller list Tuesday morning, reports Heidi Blake in a Telegraph story. Three other erotic novels were also on the list. By day’s end they’d all disappeared.

According to the Telegraph, “analysts said it was unlikely that all the erotic titles could have dropped out of the list at the same moment without being deliberately removed.”
Apple had no comment on the charges (although a Guardian report notes Steve Jobs is on the record about not wanting pornography on the iPad).

Meanwhile, “The most popular author among iPad users was, until yesterday, Carl East, a 55-year-old from Hull with more than 70 erotic books to his name. His titles, which are available for as little as 49p, were first, second and seventh in the chart before they disappeared.”

East was said to be “overwhelmed by his new found success,” and says, “I keep pinching myself to see if I am awake and sometimes I wonder, is this really happening to me.”

From Microsoft's patent application for the "Virtual Page Turn"

Has Microsoft done to Apple and Amazon what Amazon had just done to Barnes & Noble — that is, secretly patent key technology crucial to their competitor’s e-reading device?

Last week, a MobyLives report detailed how Amazon secretly patented technology used by B&N’s Nook E-Reader. Now, a report from the Register says Microsoft had similarly filed an application with the US Patent and Trademark Office for a patent on what it called the “Virtual Page Turn” — “the animation of a page-flip when a user makes the appropriate gesture on an ebook’s touchscreen,” one of the key features of the iPad and the Kindle.

From application number 20100175018:

A page-turning gesture directed to a displayed page is recognized. Responsive to such recognition, a virtual page turn is displayed on the touch display… The virtual page turn curls a lifted portion of the page to progressively reveal a back side of the page while progressively revealing a front side of a subsequent page… A page-flipping gesture quickly flips two or more pages.

Microsoft applied for the patent back in January of 2009, perhaps as part of its development on the Courier foldable tablet, which the company abandoned in April.

Still, no one seems terribly concerned. “Microsoft could stir up some licensing trouble for Apple, Amazon, and others who have page-turning animations in their apps,” says the Register report, but trouble seems “unlikely.”

Another report, from TechCrunch, concurs, saying “the action that is being patented seems fairly obvious, which may prevent the patent from being awarded. After all, it is nothing more than an animation of a page being turned, an “invention” which goes back to the days of Guttenberg.”

Sony has quietly entered the e-reader price war by significantly reducing the price of its popular device from $349.99 to $299.99, just days after both Amazon and Barnes & Noble cut the prices on their devices. As a report in the Financial Times notes, “The pricing moves by the three e-reader pioneers comes as Apple’s iPad table computer threatens to eat into the market, which is expected to more than double to 5m units this year from 2.2m last year.”

Sony’s e-reader is the second most popular device, after the Kindle, with approximately 30-35% of the market, says the FT. It credits Amazon with control of 60-65% of the e-reader market.

As the FT report recaps,

Without that cut, Sony’s top-end e-reader would have been close in price to Amazon’s most expensive Kindle, the Kindle DX, which came down in price to $379 from $489.

Amazon has also lowered the price of its cheaper version of the Kindle to $189, while Sony also cut the prices of its Touch Edition to $169.99 from $249.99 and the basic Pocket Edition to $149.99 from $169.99.

Barnes & Noble had kicked off the price cuts last month by lowering the price of its Nook to $199.

According to the FT, most of these moves are motivated by fear that “the iPad, which can also function as an e-reader, will take a significant share of the market ….”

A Vietnamese book app software developer hacked the iTunes store to drive up the sales of his Japanese Manga titles.

According to this report in the UK’s Daily Mail:

Hundreds of iTunes [users] had their accounts hacked into by a rogue Vietnamese developer who used their details to artificially inflate sales of his book applications.

Users accessing their iTunes accounts noticed something was amiss when they noticed hundreds of pounds in unauthorised charges of up to £900 going through on their cards.

The cause of the problem appeared to be a book application from a phantom Vietnamese developer Thuat Nguyen, who makes Japanese Manga titles, which saw a spike in its sales.

Nguyen was very successful in his hacking, with his apps occupying 40 of the top 50 bestselling ebook slots. It was their “popularity” that caught the attention of other publishers. They noticed that there were very few reader reviews for these wildly popular apps.

The Daily Mail’s report quotes Publisher Patrick Thompson saying, “‘It would appear that this publisher is hacking accounts and buying his own apps in order to drive up his ranking in the books category.’” The report goes on, “One user posted a complaint on website MacRumours complaining that $1,400 was missing from his account and that it had all been spent on unathorised iTunes apps. Hundreds of users are believed to have been affected by the scam.”

iTunes appears to have isolated the problem and removed the offending apps. There has been no mention yet as to how those scammed can be refunded.

iPad and Kindle go toe to toe

Dan Gallagher at the Wall Street Journal reports here that Amazon.com is having more and more difficulty holding onto its lead position in market share for e-readers, a struggle that took a dramatic turn yesterday: “Despite its early lead in the fast-growing e-book market, Amazon.com Inc. (AMZN) faces growing competition from tech giants Google Inc. (GOOG) and Apple Inc. (AAPL), according to one analyst. Marianne Wolk of Susquehanna downgraded Amazon to a neutral rating on Monday. In a note to clients, the analyst cited ‘intensifying competition’ in the e-book market, which is creating more uncertainty around the company’s Kindle business.”

“Amazon sells the Kindle e-book reader as well as electronic versions of books for the device. Last week, the company cut the e-reader’s price to $189 from $259. The company has never disclosed specific sales data for the device, though analysts believe the Kindle accounts for about 60% of the existing e-book market,” according to the WSJ.

The Kindle is facing quite a bit of competition now (see above), with Sony, B&N and the mighty iPad coming on strong in the marketplace. The WSJ quotes analyst Wolk as saying, “‘With moves pending by Apple and Google, rising competition is raising the uncertainty regarding eReader, eBook, and Book profit growth rates, capping the contribution to Amazon’s valuation from these sectors. Thus, we are less confident in the multiple expansion we previously forecast.’”

Amazon shares were down 1.4% in trading Monday. The WSJ reports, “The stock is down about 20% since peaking at an all-time high above the $150 mark in mid-April, on a split-adjusted basis.”

Mother of God, is this the end of Ricco?

“The Federal Bureau of Investigation said Thursday that it was investigating a security breach on AT&T’s Web site that allowed a security group to obtain the e-mail addresses of 114,000 iPad 3G owners,” says Nick Belton in a New York Times report on the Bits blog. As a MobyLives report noted yesterday, the breach had exposed info about tons of iPad owners including bigwigs such as New York Times Co. CEO Janet Robinson, Diane Sawyer of ABC News, film mogul Harvey Weinstein, New York Mayor Michael Bloomberg, and White House Chief of Staff Rahm Emanuel. As the Times report notes, the breach also included “senior officials from several government agencies including the Justice Department, the Department of Homeland Security and the White House.”

The Times doesn’t have a lot of additional info, though, beyond an FBI spokesperson telling Belton, “The F.B.I. is aware of these possible computer intrusions and has opened an investigation to address the potential cyber threat.”

AT&T, meanwhile, says it’s fixed the problem, and Apple still refuses to comment.

The Apple iPad has gotten off to a great start as far as the book business is concerned — it’s cornered 22% of the ebook market in its few short months of existence, as MobyLives reported just the other day.

But now, the iPad has run into a little problem. As a Gawker story reported late yesterday, “A security breach has exposed iPad owners including dozens of CEOs, military officials, and top politicians. They—and every other buyer of the cellular-enabled tablet—could be vulnerable to spam marketing and malicious hacking.” In short, “The breach … exposed the most exclusive email list on the planet, a collection … that includes thousands of A-listers in finance, politics and media, from New York Times Co. CEO Janet Robinson to Diane Sawyer of ABC News to film mogul Harvey Weinstein to Mayor Michael Bloomberg. It even appears that White House Chief of Staff Rahm Emanuel’s information was compromised.”

According to Gawker, “114,000 user accounts have been compromised, although it’s possible that confidential information about every iPad 3G owner in the U.S. has been exposed.”

Apparently, a group calling itself Goatse Security — which “has previously highlighted real security vulnerabilities in the Firefox and Safari Web browsers” — “obtained its data through a script on AT&T’s website, accessible to anyone on the internet.”

So what kind of data did Goatse obtain? “The specific information exposed in the breach included subscribers’ email addresses, coupled with an associated ID used to authenticate the subscriber on AT&T’s network, known as the ICC-ID. ICC-ID stands for integrated circuit card identifier and is used to identify the SIM cards that associate a mobile device with a particular subscriber.”

Neither Apple nor AT&T responded to calls from Gawker.

Earlier this week Seth Godin posted some great suggestions for Kindle business models on his blog, in the face of iPad competition from Apple (not that I have any sort of interest in helping Amazon–this could presumably be useful for Sony or Nook or any other eInk/bookstore affiliated e-reader).  Some of the suggestions are fascinating, and most involve a cheap or free Kindle, in a scheme similar to cell phones and service providers: free/cheap hardware in exchange for contracted service.  I’d sign up to buy 12 e-books from Amazon if it involved a free Kindle… just saying…

1. The paperback Kindle. Don’t worry about touchscreens or color or even always available internet to download new books. Make a $49 Kindle. Not so hard if you use available wifi and simplify the device. Make it the only ebook reader in town.

2. The Kindle as razor. Buy any 8 bestselling books on the Kindle ($10 each) and get a paperback Kindle for free.

3. Kindle of the month club. In the 1950s, the most powerful person in all publishing was the guy who chose the book for the book of the month club. It didn’t pay the author glamorously well, but if your book was chosen, it guaranteed people would talk and it would become a bestseller.

Sign up to get a Kindle book of your choice every month for 12 months and get a free Kindle. Amazon presents you with ten book choices, and since the cost of delivering it is zero, there’s plenty of margin for all…

4. Let publishers, leaders and corporations push PDFs and chosen books directly to their tribes via the Kindle. For example, I could put Kindles in the hands of the 1,000 service techs of my ventilation company and they’d see the new service manual daily. Or an author could create her own version of a book club, collecting a monthly fee and pushing the latest book directly to people who want to read it. Simpler still, how about letting me gift a book directly to anyone I know who has a Kindle? (thanks Lisa, for this idea).

Now let’s see if Amazon has an ear out…