Amazon’s Kindle hopes to become the iPod of books

May 20, 2008, 1:20 PM UTC

By Michal Lev-Ram

Is Amazon’s Kindle a success or a flop? It’s probably too early to tell, but one thing is clear – if the electronic-book reader takes off, it could end up doing for the publishing industry what Apple’s iPod did for music.

The Kindle is a gadget that lets users browse, buy and read over 115,000 books, newspapers and magazines on a 6-inch, portable screen. Like the iPod, the Kindle wasn’t the first of its kind. But though companies such as Sony had made earlier attempts at selling electronic readers, Amazon (AMZN) may be uniquely positioned to finally get it right and jump-start the market for digital books, setting the standard for future devices.

For starters, the e-commerce giant is one of the world’s largest book retailers. That means it’s already got deals inked with publishers and an enormous amount of content readily available. What’s more, the device’s built-in wireless capability (it operates on Sprint’s 3G network) simplifies the process of buying electronic books, since it allows customers to download content “over the air,” directly to their device without having to get it through their computer first.

“In the end it’s all about getting people the content they want in an easy and fast way,” says James McQuivey, a principal analyst at Forrester Research. “That’s the single most important factor in driving adoption.”

But McQuivey also says that the long-term success of the Kindle will depend on what a second-generation version will look like, and how soon Amazon will be able to get it into users’ hands.

“By next Christmas everyone that was willing to buy the first version will already have one, and they’ll need to launch a new one,” says McQuivey, who adds that an updated Kindle will likely include social networking features such as the ability to share favorite chapters with friends.

However, Amazon spokeswoman Heather Hustoon said that the company has no plans for further iterations of the device.

It’s hard to tell how well the current version of the Kindle is selling, since the $400 device has only been on the market for six months and Amazon has yet to disclose any sales figures. The company says it sold out of Kindles within hours when it launched last November, and that it just recently caught up with demand. Of course that doesn’t necessarily say much about the success or failure of the device, since the company hasn’t said how many units were originally manufactured.

McQuivey says Amazon will be lucky if it sells 50,000 Kindles by the end of the year.

Mark Mahaney, a Citigroup analyst, believes the Kindle could generate up to $750 million in revenue for Amazon by 2010, which would represent about 3% of the company’s total sales.

But beyond the Kindle’s market opportunity and its potential to become the “iPod” of electronic-book readers, Mahaney also sees the new product’s success as a crucial part of Amazon’s growth strategy.

“The structural challenge facing Amazon is that approximately 60% of its revenue is generated from the sales of books, music and videos — three product categories that are all in the process of being digitized,” Mahaney said in a recent report.

For Amazon to continue to grow, it must “jump the chasm from Internet-ordered/mailman-delivered media products to Internet-ordered/digitally-delivered media products.”

In other words, Amazon needs the Kindle to take off much more than consumers need a new way to read books. Then again, we didn’t really need the iPod either.