The Kindle conundrum

According to Amazon, the Kindle 2 is its single most popular product, and according to the Book Industry Study Group, the Kindle is the second most popular way for consumers to read eBooks, just behind PCs. So, why is Amazon worried about the future of the Kindle? (They won't say that they are, but their actions demonstrate something different.)

The current-generation Kindle has fallen into a "no man's land": It's not as attractive to users as Apple's iPad, but it's still too expensive to be an impulse buy. The iPad is making up ground in the eBook reader business very quickly, and even if one discounts Apple's statistics about the percentage of eBooks sold for the iPad, it's likely to exceed the Kindle's installed base by the end of this year.

Amazon is trying to encourage application development on the Kindle, but the limitations of the current-generation reader make it unappealing as an application delivery platform. There are rumors of Kindles with color displays and touch screens under development, but Amazon is always going to be playing catch-up, not only with Apple but with developers of Android tablets. And then, there's Amazon's penchant for control--the only DRM that works on the Kindle is Amazon's proprietary system, which Amazon refuses to license to any competitors. So, when you buy a Kindle, you're locked into Amazon's bookstore for everything except free (non-DRMed) content.

The iPad, on the other hand, is open to the extent that other companies can write eBook reader applications for it, and both Amazon and Barnes & Noble have. So, iPad owners can purchase and use DRMed eBooks from Apple, Amazon, B&N and, over time, many other vendors.

Amazon's eBook business is in no danger, since its eBooks can be used on Kindles, PCs, iPhones and iPads, so does it even need to stay in the hardware eBook reader business long-term? Probably not, but the company is unlikely to abandon the business. If that's the case, what does Amazon need to do in order to keep the Kindle viable in the long run? Here are a few suggestions:

• Launch an entry-level reader priced under $100. Turn it into an impulse buy. It doesn't need to be as fully-feaured as today's Kindles.
• If the company wants to keep a product in the $200-$300 SRP range, add color and open it up to competitors. License the Kindle DRM; even better, make it open source on a fairly permissive license. 
• Rather than spin its wheels with a general application developer program that's likely to go nowhere, it should focus on a few key applications that it believes to be essential for adding value. For example, dramatically improve the web browser and feed reader. Add applications that will enhance the text reading experience. Don't try to be an "iPad light".

The Kindle is still going strong, but it's what will happen in the next 12 to 24 months that's the concern. There will still be a niche for an inexpensive, small, easy-to-use eBook reader will full access to Amazon's collection of eBooks, but if Amazon tries to move the Kindle into direct competition with full-featured tablets like the iPad, it's likely to lose.