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Amazon reports strong sales for sponsored Kindle 3G, embraces digital content

The advertising-supported Kindle 3G became Amazon’s bestselling ereader during the second quarter as the importance of digital content continues to grow for the online retailer.

Amazon subsidizes the price of the Kindle 3G with AT&T-sponsored screensavers, enabling it to offer the device for $139. The mobile industry is watching Amazon’s success here as the online retailer reportedly prepares to launch its own tablet later this year.

“About six months ago, we did a price elasticity study and found that the magic price point for ereaders is around $120,” said Dmitriy Molchanov, a senior analyst with Yankee Group, Boston.

“At the time, the Kindle 3G was a little out of this price range with the starting price at $170,” he said.

“Since then, Amazon has looked at how to take the entire Kindle product portfolio and shift prices downwards, and it looks like this paying off.”

Over 950,000 books
Amazon said this week that the sales growth of Kindle devices accelerated in the second quarter ended June 30 compared with the previous year’s second quarter. Additionally, the Kindle Store now has more than 950,000 books.

The Kindle 3G with Special Offers features always-on free wireless connectivity. Amazon pays for Kindle’s 3G wireless connectivity.

Given Amazon’s success with the Kindle 3G, the mobile industry will be closely watching to see if the price of an Amazon tablet might also be subsidized by advertising. Such a move could enable Amazon to come out with a competitively priced tablet that could go up against Android. 

Amazon declined to address the rumors that it is readying a tablet launch during a conference call with analysts. However, there are signs that point to the growing importance of digital content to Amazon’s business, a trend that could get a boost from the introduction of a tablet.

“It does look like they are building some kind of scaffolding for some kind of launch,” Mr. Molchanov said.

“I always thought that if Amazon does launch a tablet, it will be up there with anything that Apple offers,” he said.

“Amazon has the huge brand satisfaction, a lot of exposure to consumers and a lot of the product offerings that you would need to compete with Apple already in place.”

Tablet on the way?
Amazon’s worldwide media sales grew 27 percent during the second quarter for a total of $3.66 billion.

The company also announced several developments during the second quarter that will make it easier for customer to access and store digital content, features that play an important role in the success of a tablet.

If Amazon were to introduce a tablet, it would likely be centered on enhancing the online retailer’s existing relationship with consumers around purchasing digital content. Amazon could use a tablet to help it sell more video and other kinds of digital content.

During the second quarter, Amazon started offering customers the ability to stream TV shows from CBS’ library and this summer the shows will also become available to Amazon Instant Video customers. The total number of Amazon Prime instant videos now includes more than 8,000 movies and TV shows.

The online retailer also enhanced storage plans for Amazon Cloud Drive and Cloud Player that include unlimited space for music, free storage for all Amazon MP3 purchases and Cloud Player for Web.

Additionally, Amazon launched Kindle Textbook Rental, which offers students savings on textbook list prices. It features tens of thousands of textbooks for the 2011 school year.

Amazon said net sales increased 51 percent in the second quarter ended June 30 for a total of $9.9 billion. Operating income totaled $201 million in the same period compared with $270 million in the year-ago quarter. Net income decreased 8 percent for a total of $191 million, or $0.41 per diluted share, compared with net income of $207 million, or $0.45 per diluted share, in second quarter of 2010.

Sales in North America totaled $5.41 billion, a 51 percent increase from the second quarter in 2010.

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily