What Amazon's Kindle App For iPhone Really Means

The latest twist -- that a Kindle app for iPhone and iPod Touch has been made available -- creates even more intrigue. Technology Business Research (TBR) analyst Ezra Gottheil published a research note on Friday collecting some of the implications, and Channelweb.com asked Gottheil to drill down a little deeper on what seems to be five lingering questions.

1. Is Amazon throwing in the towel on Kindle's long-term viability as a standalone device?

"As long as the Kindle is profitable and serves Amazon's purpose -- which is to sell lots of other things -- they'll keep it as they see fit," Gottheil said. "But that's not their identity. They are not a hardware device vendor. My guess is the Kindle as a hardware device will recede -- only because it doesn't make sense to carry a device that's not also a Web browser, note-taker and other things. Amazon doesn't particularly want to get into the Darwinian world of small portable devices."

2. Doesn't an Amazon app for iPhone and iPod cannibalize Kindle device sales?

It's not quite that black-and-white, Gottheil contended, especially given Kindle's name recognition. As TBR sees it, it's a win for both Apple and Amazon, seeing as the app makes Apple products more capable. "Apple users with a Kindle gain a more portable alternative reader," Gottheil said, whereas Amazon gets access for its eBooks to more than 18 million iPhone users and about 7 million iPod touch users.

"For the iPhone, it's a way of introducing people to the Kindle way of getting and reading books," Gottheil suggested. "Having looked at other readers on the iPhone, well, it's tolerable, but if you're an avid reader, you want a larger screen. I think the potential for cannibalization is not very large."

Gottheil thinks Amazon will lose Kindle sales among iPhone and iPod touch owners but "also gain sales to Apple users who first build a library and then want the larger device." The limited size of the Apple devices, Gottheil said, makes the idea of a larger Apple device to address the e-book market likely.

3. What's Amazon's next move?

"The number of books that can be sold increases greatly not simply because of things like lower price and easier distribution but because things like out-of-print and out-of-stock disappear," Gottheil said. "You'll see new publishers and self-publishers."

Look for Amazon to introduce readers on other platforms, Gottheil said. "TBR believes Amazon is developing readers for PCs, including netbooks, and for other portable devices with large enough screens," he said in the research note. "Amazon's key development objective is providing strong enough digital rights management to make it difficult for purchasers to share books with other people. Without strong DRM, publishers will not publish on the Kindle system. With strong DRM, Kindle's expanded market will attract more publishers, and the available library will grow, which will, in turn, further expand the market."

TBR also agrees that Kindle e-book prices will start to drop and Amazon will offer bundling and other package deals for everything from audiobooks to textbook publishers.

4. How much market share gain is reasonable to expect for e-books?

Gottheil's prediction is that about 90 percent of books will be purchased as e-books within the next two decades.

"E-books will not supplant books purchased as objects, but they will largely replace books purchased for their content," Gottheil said, noting in the interview that by "books as objects" he means childrens' books, graphic novels, cookbooks -- items that rely on more than readable text, in other words.

E-books will also be a rising tide of sorts, Gottheil suggested, as they're able to "increase the market for portable devices that can support readers, including netbooks, large-screen handsets and tablets." Watch for multifunction devices that can incorporate e-mail and other applications, he advised, and also for education plays -- school districts choosing to buy devices with readers and e-books instead of hard-copy textbooks, for one.

5. How are Amazon's book-retailing competitors going to keep up?

It won't be with e-reading devices, Gottheil said. Amazon has already stormed the market. "Amazon has basically established its position as the book seller to portable devices. It will be very hard for other companies, including Apple, to climb at this point," he said.

But despite layoffs and a gloomy business climate, other booksellers aren't rolling over. Barnes & Noble, for one, said on Monday it had bought Fictionwise, the parent company of eReader.com and eBookwise.com, for $15.7 million.

The retailer, which had a short-lived e-book business of its own from 2001 to 2003, plans to launch an e-bookstore later this year, according to a press release.