Amazon Ad-Supported Kindle Aims to Broaden E-Reader Market

Amazon is aiming to broaden the e-reader market with a cheaper, ad-supported Kindle. But can that help fend off the challenge from tablets and other e-readers? is offering a cheaper, ad-supported Kindle. Will that make a difference in the e-reader wars?

Amazon CEO Jeff Bezos, in a note placed prominently on the online retailer's landing page, suggested that a Kindle with "special offers and sponsored screensavers" will help "make sure that anyone who wants a Kindle can afford one." Buick, Chase, Olay and Visa are early sponsors of the ad-happy device, which retails for $114, a slight but noticeable reduction from the basic Kindle model at $139 and the Kindle 3G at $189.

"Our goal is to display screensavers that customers want to see," Bezos added in his note. "Anyone who's interested can download AdMash and help pick future screensavers. Two prospective screensavers show up side-by-side, and you pick the one you find most attractive." Those with the most picks, apparently, become sponsored screensavers.

Although the Kindle continues to dominate the e-reader market, the device faces competition on a number of fronts. E-book applications for the iPad and Google Android threaten to make tablets and smartphones a more attractive option for consumers than a dedicated e-reader, and Barnes & Noble's Nook offers a color alternative to the Kindle's grayscale. In a bid to blunt at least some of its rivals' power, Amazon has also pushed a Kindle app for PCs and mobile devices that allows e-books to be read on virtually anything with a screen.

An ad-supported Kindle, by virtue of a lower price point, could make the device appealing to a broader demographic of potential customers. The question is whether that price is low enough, and if customers will tolerate ads on their e-reader the same way they do on virtually every other entertainment medium.

Amazon is fighting to hold a piece of an ever-growing pie. Analytics firm In-Stat predicted in September 2010 that e-reader shipments will grow to an annual 35 million units by 2014. "Tablet PC shipments are taking off, fueled in particular by the Apple iPad introduction. Yet there will still be a revenue opportunity for e-reader suppliers and OEMs since tablet PCs and e-readers target different consumers," Stephanie Ethier, an analyst with In-Stat, wrote in a research note. "Standalone e-readers will address the needs of avid readers, to whom the reading experience is central. Tablets are better suited for consumers who prefer a stronger multimedia experience and only light reading."

Amazon could also plunge into the tablet market directly, building an Android-based device to tackle the iPad head-on. That's the theory of a handful of analysts, at least.

"Amazon could create a compelling Android- or Linux-based tablet offering easy access to Amazon's storefront (including its forthcoming Android app store) and unique Amazon features like one-click purchasing, Amazon Prime service, and its recommendation engine," Forrester analyst Sarah Rotman Epps wrote in a March 10 blog posting. "More consumers considering buying a tablet say that they would consider Amazon (24 percent) than Motorola (18 percent)."

In that scenario, the Kindle's existing customer base would come in handy.

"A Kindle-Android device could prove popular, building on the large installed base of Kindle users," added analyst Jack Gold. "And Amazon clearly has the largest -store' out there (bigger than the iTunes/app store world) so that could be a swaying factor if they got aggressive with offering special deals on their own device."

Whether Amazon ever considers building an Android device, it seems focused for the moment on pushing any angle it can with its regular Kindle.