Amazon (AMZN) is considering advertising as a way to subsidise Kindle e-books, patent filings reveal. In theory, this means that Amazon could offer Kindle books for free or reduced prices, making up the difference in ad revenue. That could drive Kindle and book sales.
Patent filings aren’t direct clues about a company’s plans, but let’s suppose that Amazon does someday want to enter the ad market. Here’s a bunch of hurdles the company will have to overcome first:
Not enough users. Even at $360, the Kindle 2 is still way too expensive for most people. So far, Amazon has probably sold about a million Kindles. Even if they get to 2 or 3 million devices shipped this year, breaking all those users and books into segments — and time-sensitive ad runs — doesn’t leave much room for a big ad buy.
Not enough impressions to make a big subsidy. Let’s say Amazon wants to subsidise your $10 book down to $5. Let’s say it’s a 300-page book, and they want to show you an ad every 10 pages. Assuming you actually read the whole book, that’s 30 impressions to make $5 — or a roughly $170 effective cost per 1,000 impressions (eCPM). That is a very high rate just to break even — most Web publishers would be happy to get a $30 eCPM — and will need to be even higher to make ad-supported Kindle books more profitable than full-price books. (And you actually have to read the book so Amazon delivers those ads!)
So let’s assume that Amazon will coax some advertisers to pay a $50 CPM — still high — because the Kindle is an intimate, exclusive experience; because its users have money to spend on novel purchases; because Kindle ad impressions are relatively scarce; and because ads could be alone on the screen without other distractions. At a $50 CPM, how many impressions would Amazon need to sell to make $5 in that 300-page book? About 100, or one impression every 3 pages. Hardly an excellent reading experience for a book you paid $5 for.
Bad screen. The Kindle’s e-ink screen — especially on the old, original Kindle — is relatively lousy at displaying illustrations and only really works for text or simple, static images. (The newer Kindle 2 and Kindle DX are better, and we assume future Kindles will have much better displays.) Still, ads will not look any better today on a Kindle than they do in a black-and-white newspaper.
Bad user interface. Any interaction with an ad would be tricky because of the Kindle’s lousy user interface — a tiny joystick and slow-moving cursor. And whatever Web site you load after a click would have to be very basic without much interaction.
Lame targeting. Google’s simple, non-flashy search ads work because people are actually looking for stuff when they search. But when people are reading a book, they’re reading a book — not really looking for stuff. There will obviously be exceptions: Perhaps cookbooks, travel guides, self-help books, how-to, etc., will be good places for ads. But novels that mention food on a random page sound like a hard sell for Olive Garden or Kraft Easy Mac ads.
Always-on Internet connection is not always on. Earlier, we thought the Kindle’s mobile Internet connection — furnished by Sprint — would be good news for advertising, because it means that the Kindle could constantly ping a server for fresh ads, even when not in a wi-fi zone. But as a reader reminds us, many Kindle owners keep the wireless signal off to conserve battery power. And wireless won’t work in the New York City subway, where we see a lot of Kindles in use.
To be sure, most of these problems can be solved as technology and the e-book industry evolves — bigger Kindle user base, cheaper prices, better screen with touch controls, better batteries, etc. The good news is that because the Kindle is such a niche product — several years away from mainstream popularity — Amazon has plenty of time to tinker. But for now, selling ads in Kindle e-books would be a small business at best — and probably wouldn’t be able to support big e-book subsidies.
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