Kindle Price Cut Shows Amazon's Feeling The Heat

Amazon Tuesday dropped the price of its Kindle 2 e-reader by $60 -- the first time Amazon has ever cut prices on the Kindle since the initial version of the device debuted in 2007. The Kindle price cut, which brings the Kindle from $359 to $299, didn't happen with nearly as much fanfare as the debut of the Kindle 2 itself back in February, or, for that matter, the May debut of its larger brother, the Kindle DX, whose price tag remains the same. So what's it all mean?

Maybe we take Amazon at its word that Kindle sales are robust and that it can increase the volume of Kindles manufactured while driving down the cost of doing so. The story checks out, actually, for one big reason: the purchase of E-Ink -- which makes Amazon's screens and those of many other e-readers -- by Taiwan-based Prime View International, which manufactures Kindle and many of its competitors. It makes sense, in other words, that Amazon can get a better deal on how Kindles are manufactured, with Prime View International controlling so much of the back end.

As Goldman Sachs analyst James Mitchell pointed out in a research note, the cut "was clearly not due to lack of demand, and we assume that this cut similarly flows from supplier scale in manufacturing key components, such as the E-Ink screen." Mitchell goes on to estimate Kindle sales at 1.5 million to date.

It's those sales figures, however, that are the cause for discussion. Amazon CEO Jeff Bezos has kept Kindle sales close to the vest, saying at recent events and Amazon analyst meetings that preserving their mystery is a "competitive advantage." The Kindle DX, for its part, is in backorder, with its first two batches having both sold out within three days in June.

But Amazon has to be feeling the heat at this point now that so much of the Kindle 2's initial hype has subsided. There's no question the e-reading market is getting crowded, and when you consider mobile e-reading applications, other dedicated e-reading devices and multipurpose devices with e-reading features, Amazon has plenty of competition on its hands, from Google's previously disclosed e-reading plans to the rise of other e-readers from Interead, Plastic Logic and a host of others.

And Amazon continues to be criticized for everything from the Kindle's recession-unfriendly price tag to not giving publishers with content on the Kindle their fair share of profits. Most recently, the Authors Guild told Bloomberg News and other outlets it was concerned publishers would see even lesser profit margins thanks to Amazon throwing its weight around when setting e-reading prices.

Regardless of Amazon's true motive for the price cut, we do know one thing: Amazon likes pre-emptive strikes. The Kindle DX can be seen as a response to all those challengers touting e-readers geared toward large-format periodicals. And don't forget: Amazon launched a Kindle application for Apple's iPhone, knowing full well that the iPhone's e-reading capabilities could make it a competitor.

That move seemed a tacit acknowledgment that Amazon knows Kindle's future as a dedicated, e-reading only device is limited, and that other devices that can provide an e-reading experience in addition to many other things will eventually make the current Kindle obsolete. If Amazon's Kindle device is not long for this world, it seems hellbent on making sure its reputation as the name brand with e-reading and e-books will be.

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